TABLE OF - Bankmed · 2016-01-05 · 01 Bankmed has always been highly recognized for its key economic role in the ... Baghdad, Erbil, and Basra. Most recently, Bankmed and its fully

TABLE OFCONTENTS

01 06 | A WORD OF INTRODUCTION08 | THE GROUP1 2 | LIST OF AWARDS AND RECOGNITIONS

06 64 | RISK MANAGEMENT

02 1 4 | CHAIRMAN’S LETTER

07 78 | SUPPORT LINES

08 84 | INDEPENDENT AUDITORS’ REPORT

03 1 8 | EXECUTIVE GENERAL MANAGER’S LETTER

05 42 | MANAGEMENT REPORT

09 206 | CORPORATE DIRECTORY 2 1 2 | CORRESPONDENT BANKS

04 22 | CORPORATE GOVERNANCE 24 | GOVERNANCE FRAMEWORK 26 | BOARD OF DIRECTORS 34 | EXECUTIVES 36 | BANKMED’S COMMITTEES 40 | COMPLIANCE 4 1 | INTERNAL AUDIT

01 | A WORD OF INTRODUCTION THE GROUP LIST OF AWARDS AND RECOGNITIONS

76

For more than 70 years, sound governance, prudent risk management, and transparency have been the pillars of Bankmed’s leadership and the primary foundations that have fortified the Bank’s presence in the local and regional markets. The Bank’s customer-centric culture, founded on timely and swift responsiveness to its clients’ needs, has largely contributed to its success throughout the years.

01

Bankmed has always been highly recognized for its key economic role in the nineties, particularly in terms of financing commercial, industrial, and contracting sectors. The Bank promoted the growth of these sectors and earned itself a prime position as a market leader in Corporate Banking. This traditional focus on the corporate sector has endowed the Bank with a robust business model and a notable history of structuring financial transaction. Following this success in Corporate Banking, the Bank has embarked on various initiatives aimed at

widening and diversifying the scope of its activities as well as enhancing its other business lines. The Bank’s diversified business model includes Corporate and Commercial Banking, Retail Banking, Private Banking, as well as Investment and Brokerage Services. Bankmed has further geared its efforts towards Small and Medium Enterprises (SMEs), an increasingly important segment of the economy. This focus has been key for the Bank’s continued progress and growth, and has also proven essential in its expansion plans.

Bankmed offers an extensive range of financial solutions through its 61 branches that cover all of the Lebanese territories. The Bank is also present in Turkey through its commercial bank, Turkland Bank (T-Bank), in Switzerland through its fully owned private banking subsidiary, BankMed Suisse, in Saudi Arabia through its investment banking arm, SaudiMed Investment Company (SaudiMed), and in Cyprus through a branch in Limassol. Bankmed also extended its presence to Iraq where it operates in three cities: Baghdad, Erbil, and Basra. Most recently, Bankmed and its fully owned subsidiary, MedSecurities Investment opened corporate and investment branches in the DIFC. Through this presence, Bankmed became the first bank in the MENA region to operate under a Category 1 license, the most comprehensive license granted by the Dubai Financial Services Authority. MedSecurities obtained a Category 3 license which entitles it to address the

evolving needs of customers and to offer a wide range of investment and brokerage services within a world-class regulatory framework.

Realizing the important role it plays in its community, Bankmed has integrated Corporate Social Responsibility (CSR) within its business strategy. In 2014, the Bank continued to promote sustainability by responding to the environmental, cultural and educational needs of our community.

Moving forward, Bankmed will continue to seek new avenues to expand the scope of its operations, both locally and regionally, and to provide a comprehensive range of financial solutions that meet its clients’ expectations. Moreover, Bankmed willremain committed to promoting investments in Lebanon and strengthening its position within the Lebanese economy.

A WORD OF INTRODUCTION THE GROUP LIST OF AWARDS AND RECOGNITION

A WORD OF INTRODUCTION

A WORD OF INTRODUCTION

8

TURKEY

UAE

CYPRUS

KSA

LEBANON

IRAQ

SWITZERLAND

THE GROUP

8 9THE GROUP

1110

Bankmed s.a.l. (Headquarters)482 Clémenceau StreetP.O. Box: 11-0348, Riad El-SolhBeirut, LebanonTel: (961-1) 373937Fax: (961-1) 362706 (961-1) 362806www.bankmed.com.lb

MedSecurities Investment s.a.l.Bankmed Center 482 Clémenceau StreetP.O. Box: 11-0348, Riad El-SolhBeirut, LebanonTel: (961-1) 371333www.medsecurities.com

BankMed Suisse s.a.Rue du Mont-Blanc 3P.O. Box 15231201 Geneva, SwitzerlandTel: (41-22) 90 60 606www.bankmed.ch

GroupMed Insurance Brokers 4th Floor, 131 MarfaaFoch Street, Beirut Central DistrictP.O. Box: 11-1082 Riad El Solh Beirut, LebanonTel: (961-1) 999433 Fax: (961-1) 998129

MedInvestment Bank s.a.l. Bankmed Center482 Clémenceau StreetP.O. Box: 11-0348, Riad El-SolhBeirut, LebanonTel: (961-1) 373937

Saudi Lebanese Bank s.a.l. 1st Floor 131 Marfaa Foch Street, Beirut Central DistrictBeirut, Lebanon Tel: (961-1) 976333

Demir Sigorta Anonim Širketi Büyükdere Caddesi Özsezen Is Merkezi No.124/B, Kat: 11 34394 Esentepe Istanbul, Turkey Tel: (0212) 288 68 44 Fax: (0212) 217 23 00

Turkland Bank Anonim Širketi (T-Bank)19 Mayis Cad. Sisli PlazaBlock A No:7 Sisli 34360 Istanbul, TurkeyTel: (90-212) 368 34 34Fax: (90-212) 368 35 35www.turklandbank.com

Continental Trust Insurance and Reinsurance s.a.l.Bloc C. Cebaco Center P.O. Box: 90-967 BaouchariehDora, LebanonTel: (961 1) 260090 - 265063Fax: (961 3) 240595E-mail: [email protected]

EMKAN Finance s.a.l. 5th Floor, Sadat Tower Sadat Street, HamraP.O. Box 11-1350Beirut, LebanonTel: (961-1) 814900 www.emkanfinance.com

SaudiMed Investment Company (SaudiMed) Suite 1104, Futuro Tower Al-Ma’ather RoadP.O. Box 63851, Riyadh 11526Kingdom of Saudi ArabiaTel: (966) 920 000 371Fax: (966) 920 000 372www.saudimed.com.sa

MedProperties Management s.a.l. Al-Shua’a Bldg. Bashir Al-Kassar Street, Verdun Beirut, LebanonTel: (961-1) 868864

THE GROUP

1312

Best Broker (MedSecurities)

Global Investor ISF(2011 - 2014)

Best New Investment Product (Med All Cap) (MedSecurities)

Banker Middle East (2014)

Best Mobile Application (MedMobile)

VISA(2013)

Most Sustainable BankWorld Finance Banking Award(2011 - 2014)

Best Trade Finance AwardGlobal Finance(2014)

LIST OF AWARDS AND RECOGNITION

Best Investment Bank AwardGlobal Finance(2009 - 2013)

Best GCC Structured Finance Company (SaudiMed Investment Company)

World Finance Banking Award(2014)

Achievers AwardVISA

(2014)

Best Broker Award (MedSecurities)

Global Banking and Finance Review(2013)

Best Banking Group LebanonWorld Finance Banking Award(2012 - 2014)

LIST AWARDS AND RECOGNITIONS

02 | CHAIRMAN’S LETTER

1716CHAIRMAN'S LET TER

02 | CHAIRMAN’S LETTER

Mohammed Hariri

The Lebanese banking sector remains one of the main pillars of economic stability in the country, demonstrating a notable ability to weather challenges.

In 2014, the Lebanese economy was able to grow at a real annual GDP of 2% despite the unstable domestic conditions and regional disturbances. The Lebanese commercial banks were able to report a growth of 7% in their consolidated assets to reach USD 175.7 billion by the end of the year, representing more than 350% of the country’s GDP.

Capitalizing on the distinctive culture of prudent risk management and sound corporate governance, Bankmed focused on executing a growth strategy reflected in the Bank’s strong results. The Bank’s Total Assets reached USD 15.4 billion at the

end of 2014, recording a 12% growth rate, and its Net Profit amounted to a record USD 133.5 million, the highest reported in its history. Customers’ Deposits grew at 10% and Loans to Customers recorded a growth rate of 6% as compared to the previous year.

In 2014, Bankmed continued to attend to the evolving needs of its clients across all of its business lines. At the Corporate Banking level, we continued to cater to large Corporate clients, expanding our Corporate Lending portfolio and providing unique services. Small and Medium Enterprises (SMEs) also witnessed an

upsurge in its Lending portfolio as the SMEs’ client base expanded. Similarly, we successfully increased our Trade Finance volumes and activities. With the continuous introduction of unique retail products and services, our Retail Banking unit also significantly grew this year. Our mounting focus on microfinance was exhibited in the outstanding portfolio of lending and other services offered to economically-active individuals with limited means through our microfinance arm. With respect to investment, our Treasury successfully diversified the Balance sheet profile, minimizing risks while enhancing profitability. Bankmed’s investment banking arms, SaudiMed Investment Company, MedSecurities Investment, and MedInvestment Bank, also contributed remarkably to the Bank’s positive performance.

Bankmed successfully expanded the scope of its operations to new locations and cemented its presence in a number of regional and international markets. We continued to offer a wide range of financial solutions through our branches in Cyprus and Iraq in addition to Switzerland, Saudi Arabia, and Turkey through our respective subsidiaries: BankMed Suisse, SaudiMed Investment Company, and Turkland Bank (T-Bank). In Turkey, T-Bank continued to show notable growth. In Iraq, Bankmed expanded its presence by inaugurating a third branch in Basra, after those operating in Baghdad and Erbil. Capitalizing on our success in these regional markets and due to the rising attractiveness of the Dubai International Financial Centre (DIFC) as a major hub

for financial activities, we identified a significant opportunity in expanding into the DIFC. Bankmed and its fully owned subsidiary, MedSecurities Investment, thus established a presence in the DIFC in the beginning of 2015. We take great pride in being the first Bank in the MENA region and one of the selected financial institutions authorized to operate in the DIFC under a Category 1 License, the most comprehensive license granted by the Dubai Financial Services Authority. This presence will allow us to cater to the demands of customers who are operating in the GCC area and the wider MENA region. Moving forward, Bankmed will continue to expand its activities and explore new strategic avenues of opportunities in various promising markets.

As part of its solid foothold in Corporate Social Responsibility, Bankmed continued during the year to embrace and practice a sustainable approach to business through its significant contributions to economic growth and social development.

Guided by our customer-centric culture, which places our clients at the heart of everything we do, we will continue to stand by our customers and support their endeavors as we move together on the growth path.

Finally, I would like to extend my sincere appreciation to our stakeholders for their continued support, our clients for their ongoing trust and confidence, and our staff for their commitment.

03 | EXECUTIVE GENERAL MANAGER’S LETTER

EXECUTIVE GENERAL MANAGER'S LET TER

20 21

03 | EXECUTIVE GENERAL MANAGER’S LETTER

Bankmed continued on a path of steady growth. This growing success was underpinned by developments realized across its various business lines and by sustained expansion into regional markets.

In 2014, Bankmed continued on a path of steady growth, reporting significant increases in most financial indicators despite the challenging environment in Lebanon. The Bank’s Net Profit increased to USD 133.5 million, setting a remarkable all-time high. The Total consolidated Assets increased by 12% year-on-year as at end of 2014 to reach USD 15.4 billion, a record growth that is higher than the market average of 6.6% in 2014. Customers’ Deposits reached USD 12.1 billion, representing an increase of 10%, which was above the industry’s average of 6% for 2014. Loans grew by 6% to reachUSD 4.7 billion and Loans-to-Deposits ratio stood at 39.1%. The Bank’s Provisions Coverage Ratio exceeded 150%, while the Liquidity Ratio stood at 35.5%, and its Capital Adequacy Ratio stood at 14.3%, exceeding, yet again, the regulatory requirement that is set by the Central Bank

of Lebanon. The high liquidity and strong capitalization are reflective of our prudent risk management and sound decision-making.

Bankmed’s growing success was underpinned by developments realized across its various business lines. While the Bank continues to hold one of the largest commercial lending portfolios in the Lebanese market, it succeeded at attracting new clients and expanding its corporate customer base in spite of the regional turmoil. Moreover, the intensified focus on Small and Medium Enterprises (SMEs) was reflected in the growth of the Bank SME’s Loan Portfolio. In addition, given the increasing demand, Bankmed boosted its Trade Finance activities and volumes, which exceeded USD 2.5 billion in 2014. Similarly, Bankmed’s Retail Banking also witnessed significant growth in 2014 with the continuous

introduction of unique retail products and services. The Bank has enhanced its reach by adding new branches, entering new markets, and acquiring a full range of state-of-the-art remote delivery channels. Furthermore, new products and services have been introduced including new loyalty card programs, as well as more user-friendly mobile banking solutions.

On the investment front, Bankmed’s Treasury continued to play a major role in the performance of the Bank and to offer its clientele access to local, regional, and international markets. In fact, the increase in the Bank ’s investment portfolio was one of the main factors that contributed to our achievements. Bankmed’s investment banking arms,SaudiMed Investment Company (SaudiMed), MedSecurities Investment (MedSecurities), and MedInvestment Bank (MIB), also played a pivotal role in the Bank’s success. SaudiMed continued to focus on building its core competency business lines of corporate finance advisory and Asset Management solutions. MedSecurities continued to realize increased success in 2014, introducing new investment solutions to a growing client base which is fundamental to the Bank’s strategic regional expansion. As for MIB, it continued to complement Bankmed’s investment banking services, strengthening further the Bank’s position in the market.

In terms of technological developments, this year witnessed the launching ofseveral projects as well as the enhancement of existing systems. Among the most significant projects was the establishment of a strategic long-term partnership with Oracle to install a new cutting-edge universal banking system. We also continued to provide state-of-the-art business solutions to support infrastructure upgrades and to optimize operational efficiency with an aim in keeping up with our clients’ expectations and in enhancing their banking experience.

In parallel, our regional and international expansion was successfully sustained in markets in which we are already present. Our subsidiaries in Switzerland and Turkey, BankMed Suisse and Turkland Bank (T-Bank) respectively, witnessed notable achievements throughout 2014. BankMed Suisse’s Liquidity Portfolio continued to grow throughout the year, while its Assets under Management witnessed

a year-on-year increase of 33% to reach USD 1.6 billion. With respect to T-Bank, it maintained its growth momentum; the bank’s Total Assets recorded a year-on-year growth of 24% in line with the bank’s strategy, while its Net Profits doubled.

Similarly, our overseas branches continued to contribute to the Bank’s success. In Iraq, Bankmed inaugurated a third branch in Basra following the establishment of Baghdad and Erbil branches. The Bank still realizes a growth opportunity in the country despite the challenging operational environment. Furthermore, given the well-entrenched position of our Banking Group in the region as well as the growing importance of the Dubai International Financial Centre (DIFC), as one of the world’s most prominent financial hubs. Bankmed and its fully owned subsidiary, MedSecurities Investment opened in early 2015 corporate and investment branches in the DIFC. Through this presence, Bankmed became the first bank in the MENA region to operate under a Category 1 license, the most comprehensive license granted by the Dubai Financial Services Authority (DFSA), while MedSecurities will operate under a Category 3 license. Moving forward, Bankmed will continue to explore expansion opportunities regionally while cementing its presence in existing markets.

As a socially responsible institution, Corporate Social Responsibility (CSR) remains one of the main pillars of our business operations. In 2014, we continued to embark on adopting initiatives that reflect our CSR strategy, conducting business while integrating social, ethical, and environmental dimensions in all aspects of our activities. One of the major initiatives is our continuous drive for expanding our microfinance, which lies at the heart of our CSR mission.

Finally, I would like to thank our valued customers for their continued trust and loyalty, our Board of Directors and Shareholders for their continuous support and contributions, and our hardworking staff for their unwavering dedication.

Mohamed Ali Beyhum

04 | CORPORATE GOVERNANCE GOVERNANCE FRAMEWORK BOARD OF DIRECTORS EXECUTIVES BANKMED’S COMMITTEES COMPLIANCE INTERNAL AUDIT

CORPORATE GOVERNANCE

24 25

04 | CORPORATE GOVERNANCE

PrinciplesBankmed is committed to practicing and promoting a responsible and sound corporate governance policy. The Board of Directors is actively involved in setting the highest standards of Corporate Governance and exercising strong oversight of the management team. The Bank emphasizes a set of fundamental principles that include: protecting shareholders’ rights, respecting and treating equitably the interests of all stakeholders, defining the responsibilities of the Board of Directors and

FunctionThe Board of Directors of Bankmed is actively involved in setting the highest standards of Corporate Governance and exercising strong oversight of an independent management team. These standards are founded on the core principles of transparency and accountability at all levels of the organization and are ultimately safeguarded by a strong commitment to a high moral standard of honesty and integrity.

GOVERNANCE FRAMEWORK

the Executive Management, pursuing a policy of full disclosures, transparency, and sound practice, as well as empowering the functions of internal and external auditors as well as those of other Banking supervisors. The Board appoints senior and executive managers for key positions in the Bank and ensures that these managers have the necessary skills and knowledge to manage their divisions as well as the appropriate control over the key individuals in those areas.

The Board and the Bank’s Management are committed to fully comply with established best practices in Corporate Governance including those set by the Central Bank of Lebanon, Banque du Liban (BDL) namely those stipulated in Circular No. 106 and Corporate Governance Guidelines adopted by the Association of Banks in Lebanon (ABL) based on Basel Committee’s recommendations concerning the Principles for enhancing Corporate Governance.

TransparencySummary of the Code of Ethics and Professional Conduct

The “Code of Ethics and Professional Conduct” (the “Code”), which is regularly updated and communicated to the Bank’s entire staff, requires all employees to avoid activities that may result in conflict of interest between

Disclosure Policy

Bankmed is committed to provide a timely, accurate, and balanced disclosure of all material information about the Bank to the broadest possible audience. This Disclosure Policy demonstrates the Bank’s commitment to transparency in reporting obligations to its stakeholders.

To ensure transparency, the Bank’s Annual Reports disclose correct and fair accounting information prepared in accordance with applicable standards. The disclosed financial statements include complete financial information and data, not just summaries. The statements are kept confidential until officially published in a way that will reach the audience in a timely manner.

customers or employees. It also requires all employees to be alert against money laundering activities and exercise honesty and due diligence when performing their duties.

In order to maintain transparency and fair dealings with related parties, the Bank is committed to apply the requirements of Articles 152 and 158 of the Lebanese Money and Credit Law and Commercial Law respectively, which require strict approval rules and conditions on the Bank’s facilities granted to any member of its Board, Executive Management or principal shareholders or to members of their families. Facilities are subject to the pre-approval of the Shareholders’ Assembly and Board and are secured by adequate and sufficient collaterals.


26 27

Board Responsibilities and CompositionThe Board of Directors oversees the development of the Bank’s overall business strategy and the decisions made by the Senior Management in the pursuit of strategic objectives. The Board of Directors assesses the appropriateness of the strategy, and the extent of its success. The Board is composed of 9 real members, 7 of them are non-executive members while many are independent. This composition helps in strengthening the objectivity of the Board’s monitoring; it also enables the members to allocate the necessary time and effort to fulfill their responsibilities.

BOARD OF DIRECTORS

There is an approved Charter for the Board that clearly defines its structure, powers, responsibilities, obligations, liabilities and the powers of the Chairman of the Board. The Bank’s By-Laws require that any amendment to such powers be subject to the Shareholders’ Assembly approval.

Although it is not required by local regulations to separate the roles of the Chairman and the General Manager (CEO), the Board has nominated a separate senior Executive General Manager (EGM) to carry out many of the executive responsibilities vested in the General Manager’s role in order to achieve the appropriate checks and balances.

Independent Executive/ Audit Risk Special Credit Remuneration Non-Executive Committee Committee Committee Committee

Mr. MOHAMMED HARIRI

(CHAIRMAN)

Mrs. NAZEK HARIRI Non-Executive

Mr. BASILE YARED, ESQ. x Chairman Member

Mr. HANI FADAYEL x Chairman Member

Mr. MAROUN ASMAR Non-Executive Member Member Member

Mr. STANISLAS DE Executive MemberHAUSS BONCZA

H.E. Dr. GHAZI YOUSSEF x Member Chairman

H.E. Mrs. RAYA HAFFAR x MemberEL-HASSAN

Mr. RICARDO RAHME, ESQ. Non-Executive Member

GROUPMED S.A.L. (HOLDING)

Bankmed’s Board of Directors

Executive

Chairman


28 29

Mr. Hariri is the Chairman of GroupMed (Holding), Bankmed and its subsidiaries, Saudi Lebanese Bank, MedInvestment Bank, Al Mal Investment (Holding) in Lebanon, BankMed Suisse S.A. in Switzerland, and SaudiMed Investment Company in Saudi Arabia, and the Chairman of GroupMed International Holding Limited in Dubai. He is the Chairman of Oger Telecom in Dubai, Türk Telekomünikasyon, TTNET, and Avea Illetisim Hizmeltleri in Turkey, and CELLC in South Africa. Mr. Hariri is also Vice Chairman (Finance and Investments) of Saudi Oger Limited. He is a board member of Arab Bank-Jordan and serves on the board of directors of various companies of the Saudi Oger Group, including 3C Telecommunications (PTY) in South Africa, Ojer Telekomünikasyon in Turkey, and Oger International and Entreprise de Travaux Internationaux (ETI) in France. Mr. Hariri is a member of the board of directors of the Association of Banks in Lebanon.

MOHAMMED HARIRIChairman of the Board of Directorsand General Manager

BOARD MEMBERS’ PROFILES

NAZEK HARIRIMemberMrs. Hariri, the wife of H.E. late Prime Minister Rafik Hariri, is a Board Member of GroupMed (Holding), Bankmed and Arab Bank. She is also the President of the Rafik Hariri Foundation and several other humanitarian, cultural, and educational institutions in Lebanon as well as in the Gulf region. She is the First Ambassador of the International Osteoporosis Foundation, as well as President of this Foundation’s 206-A Bone Fund, and President of Nazek Hariri Welfare Center for Special Education. In addition, she is the President of the Beirut Festivals Association, Vice-President of the Chronic Care Center, Lebanon, Member of the Board of Trustees of the Children’s Cancer Center, Lebanon, Member of the “Nahda Philanthropic Society for Women,” Saudi Arabia, Member of the Board of Trustees of the “Welfare Association,” Member of the Board of Trustees of Jordan Education Association as well as the Co-Chairperson of the Rafik Hariri UN-Habitat Memorial Award.

GroupMed is the principal shareholder of Bankmed and one of the largest banking and financial groups in Lebanon, with a growing regional presence.

GROUPMED S.A.L. (HOLDING)Member


30 31

Mr. Yared is an attorney at law, with law offices in Beirut. He is the Chairman of Bankmed’s Audit Committee and a member of the Special Credit Committee. He, inter alia, is a Board Member of GroupMed (Holding), MedInvestment Bank, BankMed Suisse, Interaudi Bank in New York, and GroupMed International Holding limited in Dubai. He also serves as a Board member at The Lebanese Company for the Development and Reconstruction of the Beirut Central District (Solidere) and Solidere International, as well as Saudi Oger and affiliates. Mr. Yared is also a Board member of the Ecole Supérieure des Affaires (ESA).

BASILE YARED, ESQ.Member

Mr. Fadayel is the Chairman of Bankmed’s Risk Committee and a member of the Special Credit Committee. He also serves as a Board Member of MedInvestment Bank, Saudi Lebanese Bank, and GroupMed International Management Holding. Mr. Fadayel also serves as a Board member of INVESTBANK Jordan and GroupMed Reinsurance and Brokers. Mr. Fadayel is former Assistant CEO of Arab Bank in Jordan and was previously Gulf Regional Manager of Arab Bank. He had also worked at Citibank/SAMBA. Mr. Fadayel has extensive experience in Corporate and Project Finance, Credit Risk Management, Retail, Treasury, and General Management.

HANI FADAYELMember

Mr. Asmar is a member of Bankmed’s Audit, Risk, and Remuneration Committees. He is also the Chairman-General Manager of MIB Investment (Holding), GroupMed Insurance Brokers. He also serves as a Board Member of Saudi Lebanese Bank, MedInvestment Bank, and GroupMed International Management Holding Limited. He is the former Dean of the Faculty of Engineering at Saint Joseph University in Beirut and had previously served as the Chairman of the Board of Directors of Electricité du Liban.

MAROUN ASMARMember

Mr. De Hauss Boncza is a member of Bankmed’s Special Credit Committee and the CEO-General Manager of BankMed Suisse since March 2009. Prior to that, he had spent the last 25 years with Indosuez, Crédit Agricole, and Calyon assuming various senior management positions, most of which are directly related to the Middle East region.

STANISLAS DE HAUSS BONCZAMember

Mrs. El-Hassan is a member of Bankmed’s Audit Committee and a Board Member of MedInvestment Bank and Saudi Lebanese Bank. From November 2009 until June 2011, Mrs. El-Hassan served as the Minister of Finance in Lebanon. Mrs. El-Hassan was recently appointed as the Chairman-General Manager of Tripoli’s Special Economic Zone. Earlier in her career, she was an Advisor to the Minister of Economy and Trade. In the mid 90’s, she supervised the implementation of expenditure management reforms at the Ministry of Finance. She also served as Project Director at the Prime Minister’s Office, working on the elaboration of the Government’s Economic and Social Reform Agenda.

RAYA HAFFAR EL-HASSANMember

Dr. Youssef is the Chairman of the Remuneration Committee and member of the Risk Committee. Dr. Youssef is also a Board Member of MedInvestment Bank, Saudi Lebanese Bank, and MedSecurities Investment. Dr. Youssef served as an Economic Advisor to the late Prime Minister H.E. Rafik Hariri and acted as the Secretary General for the Higher Council for Privatization. Dr. Youssef is currently the Chairman of the Board of Directors of Middle East Airport Services, and he also serves as Board Member at Cedrus Invest Bank. Dr. Youssef has been a member of the Lebanese Parliament since 2005.

GHAZI YOUSSEFMember

Mr. Rahme is an attorney at law (member of the Beirut Bar Association) and a member of Bankmed’s Remuneration Committee. He is a Board Member of BankMed Suisse, MedInvestment Bank, and Saudi Lebanese Bank. He is also a Board Member of Continental Trust Insurance and Reinsurance Co., GroupMed Reinsurance Brokers Limited, GroupMed International Management Holding Limited, and Demir Sigorta. He serves as General Counsel of the Saudi Oger Limited Group. Prior to joining Saudi Oger Limited Group, Mr. Rahme worked for five years at Gide Loyrette Nouel as a senior associate in the Department of Structured Financing mainly leverage buy outs (LBO), securitizations and derivatives.

RICARDO RAHME, ESQ.Member


32 33

The Board Committees include:The Audit Committee, the Risk Committee, the Remuneration Committee, and the Special Credit Committee.

The Audit Committee assists the Board in the proper discharge of its duties, especially those related to selecting and enhancing the qualifications and independence of external and internal auditors, fairness of the financial statements and related disclosures. This committee is also entitled to ensure compliance with applicable laws and regulations.

The Risk Committee assists the Board of Directors in fulfilling its tasks and supervisory role in properly applying the Bank’s Risk Management framework as stipulated in the regulations issued by BDL and the Banking Control Commission (BCC) Circulars.

As per BDL Circular No. 133, the Bank established a Remuneration Committee for the purpose of setting the remuneration principles and standards for Bankmed’s staff of all levels. The Committee also oversees the proper

BOARD COMMITTEES

implementation of both the Remuneration Principles and Remuneration framework.

The Bank formed a Board Special Credit Committee. The Committee is responsible for authorizing new credit or increase in credit limits granted by the Bank’s Executive Credit Committee (ECC) to a client, or several clients forming a single economic group or an interconnected group that leads to a total exposure of USD 100 million or more, net of limits secured by cash collaterals.

The Board and its relevant Committees meet regularly with the Heads of Internal Audit, Risk and Financial Control to review policies and to ensure that control functions are properly staffed and that their responsibilities are carried out effectively. The Board and Senior Management assess the quality of Corporate Governance at the Bank on an ongoing basis. The assessment is based on the reviewed results of the activities at the Bank, completed by all control units and by the Bank’s independent examiners.

Board of Directors

Audit Committee Risk Committee Special Credit Committee

Remuneration Committee

Marketing &Communication

BusinessDevelopment

Administration

Special Projects

LegalAdvisory

FinancialInstitutions

& Trade Finance

Financial ControlTechnology &

Central Operations

Market &EconomicResearch

HumanResources

Legal RiskManagement

CapitalManagement

& FinancialModeling

CentralMIS

InformationTechnology

Operations FinancialControl

PortfolioRisk

Management

OperationsRisk

Management

MarketRisk

Management

CommercialCredit Risk

Management

ConsumerCredit Risk

Management

CreditAdministration

InformationSecurity &Business

Continuity

RemedialManagement

InstitutionalBanking

Treasury

ChairmanGeneral Manager

Advisors

Subsidiaries

ExecutiveGeneral Manager

Retail Support

Non-Resident Banking

Retail Banking

ConsumerCredit

Products

ConsumerRelationship

- Corporate and Syndicate

Collection BranchNetwork &

Retail LiabilityProducts

ElectronicDelivery

Channels &Cards Products

CorporateBanking

Small &Medium

EnterprisesBanking

InternationalCommercial

Banking

Organizational Structure


34 35

Marwan AbiadFinancial Control, IT & Central Operations

Najib Abou MerhiConsumer Relationship - Corporate & Syndicate

Sami AkkaouiCapital Management & Financial Modeling

Ahmad AlwanTreasury / Foreign Exchange and Treasury Sales

Najib AssaadInternational Commercial Banking

Fouad BaalbakiInformation Technology

Samar BaasiriCompliance

Iman BabaInfoSec and Business Continuity

Nadim BarrageSpecial Projects

Ameen BissatGovernance, Audit and Compliance

Antoine BoustanyOperations

Hatem ChaaraniElectronic Delivery Channels and Card Products

Joseph ChidiacNon-Resident Banking

Diala ChoucairMarketing & Communication

Rola EjjehTalent Management and Training

Saad El ZeinCorporate Banking

Muhieddine FathallahBusiness Development

Fadi FlaihanRetail Banking

Ziad GhosnFinancial Institutions and Trade Finance

Nuha HalawaniRetail Support

Samir Hammoud*Remedial Management

Mohammed A.G. ItaniConsumer Credit Products

Adel JabreTreasury

Raed JalloulBranch Network and Retail Liability Products

Lina JebeileOffice Manager for Chairman - General Manager

Samer JumaaInternal Audit

EXECUTIVES

Dinçer AlpmanTurkland Bank (T-Bank)

Mayada Baydas EMKAN Finance

Omar BilaniContinental Trust / GroupMed Insurance Brokers-Lebanon

Stanislas de Hauss BonczaBankMed Suisse

Dania KaakaniHuman Resources

Ahmad KanaanRemedial Management

Mahmoud KibbiAdministration

Mohamad LoutfiInstitutional Banking

Faten MatarAdvisor

Nicole MelhemTreasury / Money and Capital Markets

Aref MneimnehLegal Advisor

SUBSIDIARIES

Samir MouawadRisk Management

Nabil RafeiSmall and Medium Enterprises Banking

Joy SabaLegal Management Banking & Finance

Abdellatif SidaniFinancial Control

Mazen SoueidMarket and Economic Research

Nabil ZakkaCommercial Credit Risk Management

Antoine ZeidanCollection

Afif MakkawiMedProperties Management

Osama QirrehSaudiMed Investment Company

Samer SalamSaudiMed Investment Company

Omar SultaniSaudi Lebanese Bank

Khaled ZeidanMedSecurities Investment Company

* Resigned in March 2015


36 37

Asset and Liability Committee (ALCO) The ALCO provides significant oversight and governance of the balance sheet as per the requirements of the Banking Control Commission Circular 250. Its main

Executive Credit Committee (ECC) The ECC has the Bank’s wide responsibility for maintaining sound, effective credit risk management process. The ECC is authorized to assess, review, and approve (within its limits) all the major credits and retail products offered

BANKMED’S COMMITTEES

by the Bank. Credit facilities comprise any form of credit, such as loans, letters of credit, guarantees, limits for foreign exchange transactions, and other commodities.

Major Duties and Responsibilities

- Manages the market and liquidity risks and funding resources;

- Sets the Foreign Exchange position limits allowed on currencies for the Bank and its affiliates;


- Reviews, approves, and delegates approvals to other authorities (within its limits) of all the major credits;

- Approves credit retail and consumer products offered by the Bank;

International Committee The International Committee’s objective is to abide by the requirements of BDL Circular No.110 concerning the relationship between the Lebanese banks and financial institutions and their affiliates abroad as well as to oversee

Anti-Money Laundering and Countering Terrorism Financing Committee The Anti-Money Laundering and Countering Terrorist Financing Committee (AML-CTF) assesses the effectiveness of the Bank’s systems in fighting money

the financial condition, risks, and control measures taken by all the international affiliates and evaluate how well each affiliate has achieved its stated objectives.

laundry and Terrorism Financing activities and reviews the reports sent by the various divisions concerning possible suspicious activities.


- Monitors the international operations of the Bank as well as the progress toward achievement of the agreed upon goals and objectives;

- Reviews and expresses an opinion on the financial position and business letters submitted by the affiliates;

- Provides expertise in areas where Committee members have specific experiences;


- Reviews and approves the guide for implementing the provisions of the Law on Fighting Money Laundering and the provisions of these Regulations;

- Ascertains the proper implementation and effectiveness of the AML-CTF procedures and regulations;

objective is to monitor and manage the Bank’s assets and liabilities and verify compliance with the Lebanese Central Bank and Banking Control Commission policies and regulations.

- Designs the overall interest risk policy of the Bank and set the ceilings and limits for the operations allowed, as well as verifies proper compliance and adherence to it.

- Approves Correspondent Banking lines and the allocation and placement of the Bank’s assets including shipments of cash to/from the Bank;

- Ensures the classification of loans and the transfer of problematic loans to litigious accounts and/or to Remedial Management Division and the loans write-off.

- Provides the Bank’s Board of Directors with an executive summary of all the Committee’s minutes of meetings and submit the quarterly business letters prepared by the affiliates;

- Reviews the Internal Audit (IA) reports related to the affiliates and follow on the proper implementation of IA’s recommendations.

- Reviews periodically the AML-CTF procedures and regulations and develop them in line with the latest best practices.

- Reviews the reports submitted by the Compliance Unit and the Internal Audit Unit on adopted procedures, unusual operations and high-risk accounts, regarding certain activities.


38 39

Information Technology (IT) Overseeing Committee The IT Overseeing Committee ensures that the Bank’s IT strategies, plans policies and projects conform to the

Information Security Committee (ISC) The ISC determines the Information Security Policy as well as ensures the proper implementation of corrective


- Prioritizes IT initiatives and projects across the business units and review progress;

- Oversees IT deliverables and ensures that it has the needed resources to perform its tasks;


To take the necessary measures to address and define the Information Security Policy and verify compliance with the general guidelines of IT Security mainly through:

- Defining and aligning the Information Security Policy, scope, and applicability;

Purchasing and Disbursing Committee The objectives of the Purchasing and Disbursing Committee are to decide on the disbursements for certain amounts, to approve purchases within certain limits, to qualify and

Authorized Signature Granting Committee The Authorized Signature Granting Committee reviews requests to grant and modify authorized signatures to employees.

determine suppliers and to inform senior management about the status of work-in-progress projects.


- Allocates and approves the disbursements for certain amounts of purchases;

- Approves purchases of assets and Bank applications within certain limits;


- Reviews applications and requests to grant (or cancel) authorized signatures to / from employees at the Bank;

business objectives of the whole Bank, and reviews IT operational efficiency.

- Approves the IT Strategy and Operating Plan, annually and as updated;

- Discusses IT service delivery and target improvements.

measures recommended by the various internal control units in the Bank.

- Ensuring the implementation of the recommendations and issues raised by the IT Security;

- Providing guidance for IT Security Breaches and Incidents noted;

- Reviewing and approving the Business Continuity Plan for the Bank.

- Completes bidding and obtains offers from suppliers or service providers for intended purchases.

- Ensures proper segregation of duties and absence of conflict of interest in granting authorized signatures;

- Ensures that the ethical and professional background of authorized signatories fit the predetermined criteria for holding such signatures.


40 41

The Compliance Function assists the Management in verifying that the Bank and its subsidiaries meet relevant regulatory requirements in protecting and enhancing its reputation with its stakeholders to minimize and avoid financial losses.

It ensures proper implementation of the Directives issued by the Central Bank of Lebanon, (BDL), in fighting money laundering and countering terrorist financing by following the highest standards and best practices in implementing the proper due diligence on customers’ accounts and transactions and verifying compliance with relevant laws and regulations. The Compliance Function has succeeded in opening communication channels with the branches, front liners, monitoring units, and the Legal Management Division in Bankmed and other subsidiaries in the Group on one hand, and with the Correspondent Banks (in coordination with the Financial Institutions Division) and the Special Investigation Commission (SIC) on the other hand in order to ensure proper understanding and full abidance with the Anti-Money Laundering (AML) and Countering Terrorism Financing (CTF) regulations.

COMPLIANCEThe Function also verifies compliance with all relevant laws and regulations and assists Senior Management in identifying compliance risks. The Function reports deviations to the Board Audit Committee and Senior Management.

The Compliance Function is independent from any business and other control activities of the Bank.

Furthermore, the Compliance program is subject to regular independent reviews by the Bank’s Internal Auditors, External Auditors, and SIC who assess the efficiency of the program and assess the Bank’s compliance with the AML directives. The staff of Compliance collectively have a thorough understanding of banking and financial laws and regulations and are requested to become AML certified through the Certified Anti-Money Laundering Specialists (CAMS) certification.

Bankmed Internal Audit (IA) Division assists the Bank in accomplishing its objectives by bringing a systematic and disciplined approach to evaluate and improve the effectiveness of risk management, control and governance processes. The IA operates in accordance with an approved Internal Audit Charter which clearly specifies the reporting level, mission and scope of work of the Internal Audit.

The IA, independent of the Bank’s Management, is managed by the Head of the Internal Audit Division who, in turn, reports to the Audit Committee and to the Chairman of the Board. The staff of the IA, under the supervision of the Head of the Internal Audit Division, have unrestricted access to all functions, records, property, and personnel; in order to allocate resources, set frequencies, select subjects, determine scopes of work, and apply the techniques required to accomplish the audit objectives.

Collectively, the IA has extensive experience and know-how pertaining to auditing tools and techniques and is composed of dynamic, flexible, and experienced audit staff. The IA encourages and supports the Bank’s Internal Auditors to qualify for the Certified Internal Auditor certification (CIA) and the Certified Information Systems Auditor certification (CISA), creating as such a knowledgeable pool and well-trained team of professional Internal Auditors.

INTERNAL AUDITWhile the IA coverage at the Bank is guided primarily by the regulations of the Central Bank and the Banking Control Commission of Lebanon, yet this coverage continuously exceeds such requirements and rigorously complies with International Auditing Standards as well as standards of other related supervisory authorities.

Given the steady and gradual expansion of Bankmed Branch network and diversity of operations, the Internal Audit plans to maintain sufficient and adequate Audit coverage and techniques, while maintaining a cost effective approach through:

a- Using a “risk-based” audit approach, a methodology that links internal auditing coverage to the Bank’s overall risk management framework. Such a methodology relies heavily on the efficient and effective use of technology in the conduct of its business;

b- Developing the IA electronic audit methodology, namely the “Continuous Auditing” methodology, employing one of the most widely used Computer Aided Audit Techniques (CAATs), Audit Command Language (ACL);

c- Emphasizing the importance of controls and preventive techniques by requiring Branches to comply with Key Control Elements (KCE) embedded in the banking operations, necessary to prevent incidents of fraud and regulatory non-compliances.

05 | MANAGEMENT REPORT

MANAGEMENT REPORT

44 45

05 | MANAGEMENT REPORT

Growth accelerated at a modest pace despite the fragile political and economic situation that continued to loom over Lebanon in 2014. Most economic indicators picked up during the year, albeit below their growth potential. However, the sound monetary policy, the robust banking system, driven by strong financial flexibility and liquidity

Source: IMF, Central Administration of Statistics

2014 2013

GDP-current prices (USD billions) 49.9 47.6

Real GDP Growth Rate 2.0% 2.5%

Inflation Rate-average consumer prices 1.2% 5.7%

positions, as well as stable remittances from the large Lebanese Diaspora contributed to the high resilience of the economy and financial situation. In fact, despite all of the challenges, the Lebanese Economy was able to achieve a real annual GDP growth of 2.0% in 2014.

LEBANON’S ECONOMIC UPDATE

(*) of whichSource: Banque du Liban (BDL), Lebanese Customs

Source: Banque du Liban (BDL)

Real SectorMost Real Sector indicators recorded positive growth in 2014. Primarily, the total number of tourist arrivals increased by 6.3% year-on-year to reach 1,354,647 tourists by the end of 2014. This represents the first positive growth in the Lebanese tourism sector since the beginning of the Arab Spring in 2011. The total flow of passengers at Beirut Rafik Hariri International Airport

Foreign SectorLebanon’s Foreign Trade Deficit showed a slight contraction by 0.6% during 2014 to reach USD 17.2 billion at the end of the year, given that the value of imports decreased by a 3.5% (fuel imports went down by 4.0%

increased by 5.0%, construction permits issues increased by 4.8%, and the Central Bank of Lebanon (Banque du Liban-BDL) coincident indicator (the composite indicator of economic activity in Lebanon as monitored by the Central Bank) rose by 3.1%. The average inflation rate for 2014 was around 1.2%.

due to lower prices) while the value of exports decreased by 15.9%. Net capital inflows reached USD 15.8 billion dropping from USD 16.2 billion in 2013. This resulted in a wider balance of payment deficit of USD 1.4 billion.

2014 2013 Y-o-Y

BDL Coincident Indicator (yearly average) 273 265 3.1%

Real Estate Indicators

Construction Permits Issues (in sqm) 13,546,000 12,925,000 4.8%

Cement Deliveries (in tons) 5,517,000 5,831,000 (5.4%)

Total Value of Cleared Checks (USD billions) 74.4 72.4 2.9%

Tourist Arrivals 1,354,647 1,274,362 6.3%

Beirut Port Indicators

Freight Activity (in thousand tons) 8,281 8,268 0.2%

Number of Containers 764,451 758,338 0.8%

Number of Vessels 2,110 2,026 4.1%

Beirut Airport Indicators (passengers)

Arrivals 3,222,616 3,030,187 6.4%

Departures 3,332,322 3,219,316 3.5%

Transfers 14,419 15,629 (7.7%)

(USD billions) 2014 2013

Imports 20.5 21.2

Exports 3.3 3.9

Foreign Trade Balance (17.2) (17.3)

Balance of Payment (1.4) (1.1)

Capital Inflows 15.8 16.2

o/w* Remittances 8.9 7.9

Exports/Imports 16.2% 18.5%

Capital Inflows/Trade Deficit 91.8% 93.5%

Trade Deficit/GDP 34.4% 36.3%

MANAGEMENT REPORT

46 47

(USD billions)

Net Public Debt rose by 7.6% to reach USD 57.3 billion. This upsurge is largely attributed to the rise in local currency debt by 10.0%, while Foreign Currency Debt

Source: Ministry of Finance

Monetary ConditionsDuring 2014, Lebanon benefited from a favorable monetary situation; the Central Bank’s Foreign Reserves reached USD 37.9 billion by the end of 2014, recording a year-on-year increase of 7.3%. These reserves covered 22 months of imports at end-2014, underlining BDL’s strong ability to meet demand for foreign currencies.

Public FinanceThe year 2014 witnessed some improvement in fiscal accounts. In fact, Total Fiscal Deficit narrowed by a yearly 27.0% to reach USD 3.1 billion. The main factor behind this drop is the rise in total revenues by 15.5% to reach USD 10.9 billion in 2014 accompanied with a

(*) of which(**) Including taxes on income, interests, profits, capital gains, and dividendsSource: Ministry of Finance

2.3% contraction in total expenditures that reachedUSD 14.0 billion in 2014. The amount of expenditures dedicated to the debt service increased by 10.8% from its 2013 figure, to reach USD 4.2 billion.

decreased by 2.0%. As for Gross Public Debt, it grew by 4.9% in 2014 to reach USD 66.6 billion.

When coupled with the gold stock, which stood at USD 11 billion at year-end 2014, the foreign assets at the BDL cover more than 100% of the local currency money supply (M2), which indicates a solid footing of the exchange rate peg.

(*) of which(**) Excluding loans to non-residentsSource: BDL, Association of Banks in Lebanon

Banking Sector ConditionsIn 2014, Lebanon’s financial sector performance remained solid with Total Assets reaching around 352% of GDP as of December 2014.

The sector’s Total Assets grew by USD 10.9 billion, a 6.6% growth to reach USD 175.7 billion at end-2014. This growth was funded by the rise in the Capital Accounts by USD 1.5 billion, representing a 10.8% year-on-year growth.

Total loans to Customers (Residents and Non-Residents) recorded a 7.4% annual growth and reachedUSD 50.9 billion in December 2014. This is still a healthy growth, considering the relatively difficult operating environment caused by domestic uncertainties and regional instabilities. The Total Customers’ Loan Portfolio represented 29.0% of Total Assets and 34.0% of Total Deposits as of December 31, 2014.

The banking sector activity remains mainly driven by Customer Deposits, which constitute the major source of funding. Banks’ Deposits grew by USD 8.5 billion in 2014, recording a 6.1% annual growth. The LBP deposits grew by USD 3.6 billion, a 7.4% growth when compared with the same period in 2013 and the Foreign Currency Deposits increased by USD 4.8 billion recording a 5.3% growth on a year-on-year basis.

Resident Private Sector Deposits represented around 77.0% of Total Deposits, recording USD 114.1 billion in December 2014. Non-Resident Private Sector Deposits represented 21.0% of Total Deposits in 2014, having grown by USD 1.8 billion, representing a 6.4% year-on- year growth to reach USD 30.3 billion. Public Sector Deposits accounted for the remaining 2.0% of Total Deposits, recording USD 3.2 billion at year-end 2014.

(USD billions) 2014 2013

Total Government Revenues 10.9 9.4

o/w* Customs 1.4 1.4

o/w VAT 2.2 2.2

o/w Total Income Tax** 1.9 1.7

o/w Telecom Transfers 2.0 1.4

Total Government Expenditures 14.0 13.6

o/w EDL Transfers 2.1 2.0

o/w Interest Payments 4.2 3.8

o/w Salaries, Wages, and End of Services Compensations 4.5 4.3

Total Government Deficit (3.1) (4.2)

Primary Government Balance 1.3 (0.2)

2014 2013

Gross Local Currency Debt, of which: 41.0 37.3

with the Central Bank 13.2 11.4

with Commercial Banks 20.9 19.8

with Public Entities 5.1 4.7

Other Holders 1.8 1.4

Foreign Currency Debt, of which: 25.6 26.1

with Commercial Banks 16.3 17.6

Gross Public Debt 66.6 63.5

Public Sector Deposits 9.3 10.2

Net Public Debt 57.3 53.2

Gross Public Debt/GDP 133.0% 133.0%

Net Public Debt/GDP 115.0% 112.0%

December 31,

December 31,

2014 2013 Y-o-Y

Total Assets 175.7 164.8 6.6%

Deposits 147.6 139.2 6.1%

Resident Private Sector 114.1 107.7 5.9%

o/w* in LBP 45.6 42.7 6.8%

o/w in FCY 68.5 65.0 5.4%

Non-Resident Private Sector 30.3 28.5 6.4%

o/w in LBP 3.9 3.4 14.8%

o/w in FCY 26.4 25.1 5.3%

Public Sector Deposits (in LBP) 3.2 3.0 8.4%

Loans to Customers 50.9 47.4 7.4%

o/w to residents in LBP 12.5 11.1 11.9%

o/w to residents in FCY 32.9 30.4 8.4%

o/w to non-residents in FCY 5.5 5.9 (5.9%)

Capital Accounts 15.7 14.2 10.8%

o/w Tier I 14.5 13.0 11.9%

o/w Tier II 1.2 1.2 (1.4%)

Exposures to Treasury 37.4 37.7 (0.8%)

o/w Treasury Bills in LBP 20.9 20.1 4.4%

o/w Treasury Bills in FCY 16.5 17.6 (7.4%)

Deposits with the Central Bank 63.5 54.4 16.8%

Foreign Assets** 18.7 20.7 (10.1%)

(USD billions)

MANAGEMENT REPORT

48 49

MANAGEMENT REPORT

Performance Summary in 2014

BALANCE SHEET REVIEWASSETS

The Management Report has been prepared based on the audited consolidated financial statements of Bankmed and the companies in which the Bank has a controlling financial interest (subsidiaries and associates, as applicable) as at December 31, 2014 and December 31,

Bankmed maintained a steady growth in 2014 across all lines of operations and succeeded in weathering uncertainties within challenging environments. The implementation of well-defined strategies along with setting clear priorities for each business unit has allowed

Bankmed’s consolidated Total Assets stood atUSD 15,420 million as at December 31, 2014 reflectingan 11.8% year-on-year increase when compared to USD 13,790 million as at December 31, 2013. The USD 1,630 million increase in 2014 was driven by a

2013. Bankmed’s Management Report should be read in conjunction with the audited consolidated financial statements as at December 31, 2014, which have been prepared in accordance with International Financial Reporting Standards (IFRS).

the Bank to deliver consistent and sustainable growth across various financial indicators. In order to grow its bottom line, Bankmed continued to seek new opportunities powered by its extensive experience in the local and regional banking environment.

rise evident in the majority of the Bank’s asset classes. This reflects the Bank’s commitment to maintain a steady and sustainable growth that has been witnessed over the past years, and it is also an attestation of the soundness and effectiveness of the Bank’s strategy.

Total Assets (USD millions)

Breakdown of Asset Classes in 2014

Growth Indicators (USD millions) 2014 2013 2012 2011 2010 CAGR

Total Assets 15,420 13,790 12,507 11,791 11,186 8.4%

Cash and Deposits with Central Banks 2,817 2,809 2,441 1,884 1,433 18.4%

Total Loans 4,746 4,488 4,334 4,160 3,522 7.7%

Total Liabilities 13,919 12,442 11,218 10,803 10,082 8.4%

Total Customers’ Deposits 12,123 11,051 9,862 9,478 8,806 8.3%

Total Equity 1,501 1,348 1,289 988 1,104 8.0%

Net Interest Income 264 220 210 217 195 7.9%

Net Income for the Year 133 128 127 117 106 5.9%

Number of Staff (count) 2,408 2,207 2,115 1,954 1,788 7.7%

Number of Branches (count) 108 93 92 86 85 6.2%

MANAGEMENT REPORT

50 51

Loan PortfolioTotal Loans (USD millions)

Breakdown of Net Loans and Advances by Type of Customer in 2014

Breakdown of Net Loans and Advances by Economic Sector in 2014

The Loan Portfolio stood at USD 4,746 million as at December 31, 2014 compared to USD 4,488 million as at December 31, 2013, registering a year-on-year growth of 5.7%.

The increase in the Loan Portfolio was mainly driven by a 20.5% year-on-year growth in Retail Loans (including mortgages), which stood at USD 863 million as at December 31, 2014 compared to USD 716 million as at December 31, 2013.

The continuous introduction of new tailor-made products and services, including strategic alliances with major retailers, new loyalty cards, housing loan services, as well as mobile banking solutions all contributed to the augmentation in the Loans to Retail customers.

Lending activities to Small and Medium Enterprises (SMEs) clients reached USD 1,053 million as at December 31, 2014 compared to USD 1,004 million as at December 31, 2013, registering a year-on-year increase of 4.9%.

In addition to enhancing its relationships with existing clients, the Bank welcomed during the year new prime customers, who are leaders in their respective sectors, and thus expanded and varied its client base. This approach is in line with Bankmed’s implementation of a well-diversified strategy ensuring reasonable credit exposure to any one particular industry, and thus reducing high concentration ratios in specific economic sectors.

In order to be highly accessible to its clients, Bankmed pursued its expansion strategy by adding new branches to its networks in Lebanon and abroad. Two new branches were inaugurated in Lebanon in 2014 in addition to six branches in Turkey. Moreover, the Bank ensures that

The growth stems from the expansion of the Bank’s operations in Turkey where the Bank has been increasing its share of this line of business through new products and facilities. Also as one of the very few banks targeting this sector in Lebanon, Bankmed offers tailored financial solutions to adequately meet its clients’ financial needs.

The largest component of the Loan Portfolio remains Corporate clients whose outstanding loans registered a year-on-year increase of 2.2% as at December 31, 2014 and reached USD 2,830 million. Corporate clients maintain their relationship with Bankmed as it is recognized for its expertise and knowledge in a wide spectrum of sectors, including: Contracting, Real Estate Development, Manufacturing, Wholesale and Retail Trade, Transportation, and Telecommunication. In addition, the Bank’s business solutions have helped its clients manage and expand their own businesses and improve their bottom-line.

its staff members undergo the necessary trainings in order to always exceed customers’ expectations.

Bankmed is always keen on attending to its customers’ evolving needs through its 61 branches and 110 ATMs in Lebanon, one branch in Cyprus, three branches in Iraq, a subsidiary in Switzerland, and a subsidiary in Turkey (with 33 branches).

As illustrated in the following chart, the diversification of Bankmed’s Loan Portfolio ranges across various business activities, from Contracting and Construction, to Manufacturing Industries, to dealings with Private Individuals.

MANAGEMENT REPORT

52 53

With respect to the maturity of the Loan Portfolio as at year-end 2014, the majority of the loans are classified as short-term loans, maturing within three months

Loans denominated in Lebanese Pounds stood at a counter-value of USD 466 million as at December 31, 2014 compared to a counter-value of USD 357 million as at December 31, 2013. The 30.5% year-on-year increase in loans denominated in Lebanese Pounds was mainly

Loans originating from Turkey witnessed an increase of 16.4% and reached USD 1,448 million as at December 31, 2014 compared to USD 1,244 million as at December 31, 2013. The growth was driven by an increase in Turkland’s (T-Bank) lending activities to Corporates and SMEs.

The loans booked in the Middle East recorded a year-on-year surge of 125% and reached USD 27 million as at December 31, 2014 when compared with last year. The main cause behind the increase is due to a rise in the

The segregation of the Loan Portfolio by originating country is composed of Lebanon (65.5%), Europe (33.9%), and the Middle East (0.6%).

Loans denominated in US Dollar accounted for the largest share of the Loan Portfolio, standing at USD 2,896 million as at December 31, 2014 and remaining flat as compared with the previous year.

(representing 50.6% of the portfolio), followed by loans maturing within more than five years (representing 15.7% of the portfolio).

driven by a 19.4% year-on-year surge in mortgages. The Loan Portfolio originating from Europe as at year-end 2014 reached USD 1,609 million, registering a year-on-year increase of 14.6% where most of the growth is generated from Turkey.

Loans denominated in Turkish Lira stood at a counter-value of USD 1,034 million as at December 31, 2014 compared to a counter-value of USD 842 million as at December 31, 2013, registering a year-on-year increase of 22.8%.

Bank’s lending activities to Corporate Clients, which constitute the majority of the Lending Portfolio in the Middle East.

The Loan Portfolio originating from Lebanon remained stable and reached USD 3,110 million as at December 31, 2014. Loans issued to Retail clients witnessed a year-on-year increase of 37.9% by year-end 2014 when compared with year 2013, reflecting the Bank’s strategy to further strengthen its position in Retail Banking. In addition, mortgage loans to clients witnessed an increase of 20.8% as at December 31, 2014 when compared with year-end 2013.

Breakdown of Net Loans and Advances by Maturity in 2014

Breakdown of Net Loans and Advances Booked in Europe in 2014

Breakdown of Net Loans and Advances in Lebanon in 2014 Loan Portfolio by Currency

2014 Contribution 2013 Contribution Year-on-Year

(USD millions) Change

USD 2,896 61.0% 2,906 64.7% (0.3%)

TRY 1,034 21.8% 842 18.8% 22.8%

LBP 466 9.8% 357 8.0% 30.5%

EUR 259 5.4% 300 6.7% (13.7%)

GBP 31 0.7% 17 0.4% 82.4%

Other 60 1.3% 66 1.4% (9.1%)

Total 4,746 100% 4,488 100% 5.7%

MANAGEMENT REPORT

54 55

Loans Utilization In order to reduce high concentration ratios in specific economic sectors, Bankmed implements a well-diversified strategy ensuring reasonable credit exposure to any particular industry.

Bankmed’s Investment Securities portfolio stood at USD 5,374 million as at December 31, 2014 compared to USD 3,810 million as at December 31, 2013. The portion of the Investment Securities portfolio to Total Assets increased to 34.9% as at December 31, 2014.

The Fixed Income Securities (Financial Assets Measured at Amortized Cost) exhibited a significant year-on-year increase and reached USD 4,669 million as at December 31, 2014. In this respect, Bankmed’s portfolio of BDL Certificate of Deposits (CDs) stood at USD 2,781 million as at December 31, 2014, going up from USD 1,195 million as at December 31, 2013. On the other hand, holding

Securities classified as Financial Assets at Fair Value Through Profit and Loss (FVTPL) stood at USD 439 million as at December 31, 2014 compared to USD 358 million as at December 31, 2013, registering a year-on-year growth of 22.6%. This was mainly driven by an increase in the Bank’s

Strategic Equity Securities witnessed a year-on-year increase of 12.2% to reach USD 266 million as at December 31, 2014, contributing further to the USD 1,564 million total increase witnessed in Bankmed’s Investment Securities portfolio.

During 2014, Bankmed incorporated two new insurance companies by acquiring 55% ownership of GroupMed

With regards to collateralization, Bankmed’s Loans Portfolio remained well-collateralized, diversifying away risks associated with lending activities as the majority of the outstanding facilities are backed by secured collaterals. Furthermore, collective provisions as at December 31, 2014 stood at a significant USD 130 million,

Throughout 2014, there was a slight shift from loans utilization in the Middle East, Gulf and Africa regions to Europe. However, loans utilization exposures remained the same in the Lebanese market.

of Lebanese Government bonds declined fromUSD 1,689 million as at December 31, 2013 toUSD 1,308 million as at December 31, 2014, recording a year-on-year decrease of 22.6%.

The restructuring in the Investment portfolio is based on Asset and Liability Management Committee (ALCO)’s decision to enhance profitability and to decrease the Risk Weighted Assets (RWAs) due to the fact that BDL CD’s RWA is Risk Weighted at 50% for Foreign Currencies instruments, while Government of Lebanon bonds are Risk Weighted at 100% for Foreign currency instruments.

holding of BDL Certificate of Deposits by USD 54 million to reach USD 93 million as at December 31, 2014, followed by a year-on-year increase of 38.5% in the Bank’s exposure to Lebanese Government bonds which stood at USD 216 million as at December 31, 2014.

Insurance Brokers in Saudi Arabia and a 100% equity stake in Continental Trust Insurance and Reinsurance in Lebanon. Bankmed also participated, according to its percentage of ownership, in the capital increase of T-Bank for the amount of TRL 75 million (USD 35 million) increasing the bank’s capital by TRL 150 million.

reinforcing the highly conservative approach adopted by the Bank. In turn, the provision coverage ratio as at December 31, 2014 is high at 151.4%. Additionally, the Non-Performing Loans to Gross Loans ratio as at December 31, 2014 is 2.8% from 2.2%, which is still considered to be low compared to the market.

Loans by Geographical Utilization (%)

Breakdown of Portfolio Securities in 2014

Investment Securities

(USD millions) 2014 Contribution 2013 Contribution

BDL Certificate of Deposits 2,781 59.6% 1,195 37.2%

Lebanese Government bonds 1,308 28.0% 1,689 52.5%

Other Government exposures 418 9.0% 303 9.4%

Debt securities issued by banks 93 2.0% 20 0.6%

Certificates of deposits issued by banks 30 0.6% - -

Debt securities issued by foreign companies 29 0.6% 8 0.3%

Structured notes-CLN 10 0.2% - -

Fixed income securities 4,669 100% 3,215 100%

(USD millions) 2014 Contribution 2013 Contribution

Lebanese Government bonds 216 49.3% 156 43.6%

BDL Certificate of Deposit 93 21.3% 39 10.9%

Structured notes-CLN 52 11.8% 62 17.3%

Debt securities issued by foreign companies 51 11.6% 49 13.7%

Debt securities issued by foreign Banks 11 2.4% 40 11.2%

Debt securities at FVTPL 423 96.4% 346 96.7%

Equity securities at FVTPL 16 3.6% 12 3.3%

Total securities at FVTPL 439 100% 358 100%

MANAGEMENT REPORT

56 57

(USD millions)

(USD millions)

LIABILITIES

SHAREHOLDERS’ EQUITY

Total Liabilities (USD millions)

Total Equity (USD millions)

Bankmed’s Total Deposit Base continued to exhibit strong growth as the focus on acquiring and retaining core customer accounts was reinforced with a large variety of

The following table sets forth a breakdown of the Total Deposit Base by tenor and by currency as at December 31, 2014 and December 31, 2013:

Over the past few years the Bank has been working as part of a strategic decision to increase deposits with longer duration.

Total customers and related parties’ deposits reached USD 12,123 million as at December 31, 2014, recording a year-on-year increase of 9.7%, when compared with last year, and accounting for 89.3% of the Bank’s Total Deposit Base. The continuous increase in the deposit base over the years firmly reflects the increasing confidence in Bankmed.

product offerings. The Deposit Base recorded a year-on-year growth of 11.3% and reached USD 13,574 million as at December 31, 2014 when compared to year-end 2013.

Bankmed continued to attract deposits with longer maturities and launched several campaigns for this purpose during the year 2014.

Deposits and borrowing from banks and financial institutions showed an increase of 47.1% and reached USD 952 million as at December 31, 2014 when compared with December 31, 2013. Despite the slight increase in the ratio of deposits and borrowing from banks and financial institutions to the Total Deposit Base from 5.3% at year-end 2013 to 7.0% at year-end 2014, Bankmed continued to demonstrate little dependency on external sources of money and remained reliant on the loyal core customer base.

As at December 31,

2014 2013

Deposits from banks and financial institutions 431 386

Customers’ deposits 11,443 10,332

Deposits from related parties 680 719

Borrowings from banks and financial institutions 521 261

Certificates of deposits 499 498

Total Deposit Base 13,574 12,196

December 31, 2014(USD millions)

LBP Base Accounts FCY Base Accounts Total Contribution

Less than 1 year 2,868 9,389 12,257 90.3%

1 to 3 years 87 944 1,031 7.6%

3 to 5 years 48 88 136 1.0%

5 to 10 years 9 100 109 0.8%

Over 10 years 19 22 41 0.3%

Total 3,031 10,543 13,574 100%

December 31, 2013

LBP Base Accounts FCY Base Accounts Total Contribution

Less than 1 year 2,509 8,280 10,789 88.5%

1 to 3 years 76 528 604 4.9%

3 to 5 years 25 620 645 5.3%

5 to 10 years 11 99 110 0.9%

Over 10 years 20 28 48 0.4%

Total 2,641 9,555 12,196 100%

MANAGEMENT REPORT

58 59

Bankmed strives to maintain an adequate capital base with the aim to cover risks inherent in its business operations. The adequacy of the Bank’s capital is actively managed and monitored in line with Basel framework and as required by the Central Bank of Lebanon. The primary objective remains to ensure that the Bank maintains a sufficient level of capital exceeding regulatory requirements and to achieve a strong credit rating, while optimizing shareholders’ value and managing the planned business expansions.

Bankmed’s Total Equity stood at USD 1,501 million as at December 31, 2014, compared to USD 1,348 million as at December 31, 2013, recording a year-on-year increase of 11.4%. The increase witnessed in 2014 was largely at the level of Tier I Equity which registered the following changes:

The Bank’s Capital Adequacy Ratio continued to show growth in 2014. As at December 31, 2014 the ratio stood at 14.31% compared to 14.01% a year earlier and to an 11.5% required by the Central Bank of Lebanon.

This strong capitalization reflects the Management’s focus on sustaining an adequate position to cover

By offering a full range of commercial lending products and services including term loans, syndications, subsidized loans, and working capital facilities, Bankmed provides solutions to help its clients manage their working capital, protect and expand their business, and increase revenues. In addition, Bankmed is recognized for its expertise and knowledge in offering its customers customized Trade Finance facilities incorporating all associated products and services.

Bankmed manages a growing network of more than 230 prime local, regional, and international correspondent banks virtually meeting clients’ needs in every corner of the globe.

The Group monitors the adequacy of its capital using the methodology and ratios established by the Central Bank of Lebanon. These ratios measure Capital Adequacy by comparing the Group’s eligible capital with its balance sheet assets, commitments and contingencies, as well as notional amount of derivatives at a weighted amount to reflect their relative risk.

- Issuance of Series III redeemable, non-cumulative and perpetual Preferred Shares for a value of USD 150 million at a price of USD 100 per share. This issuance was partially offset by a call option exercised by the Bank on its Preferred Shares Series I redeemable, non-cumulative and perpetual shares by USD 100 million.

- Issuance of 1 million ordinary shares, distributed to the ordinary shareholders for an aggregate value of LBP 10 billion (USD 6.63 million), transferred from the retained earnings to the share capital.

- Increase in reserves and retained earnings transferred from Net Profits for a total of USD 59.6 million.

- Other equity changes and non-controlling interest contributed further to the rise in the Bank’s Equity.

inherent risks in various business activities, while coping with the Bank’s future growth strategies.

In line with the Basel III new capital regulations, the Central Bank of Lebanon had established a road map in 2011 for gradually increasing capital requirements in phase-in arrangements with the implementation taking place between the years 2012 to 2015.

The Bank structures, coordinates, and finds solutions that cater to all possible customers’ Trade Finance needs by negotiating the best terms and conditions with its correspondents on behalf of its clients.

Despite the challenging environment in which the Bank operates, the total number of Trade Finance transactions, increased from 12,404 in 2013 to 12,823 in 2014, recording a year-on-year growth of 3.4%. With respect to business volumes, the Trade Finance activities increased from USD 2,441 million in 2013 to USD 2,554 million in 2014, recording a year-on-year increase of 4.6%.

The Central Bank of Lebanon requires each bank or banking group to hold a minimum level of regulatory capital of LBP 10 billion for the Head Office, LBP 0.5 billion for each local branch and LBP 1.5 billion for each branch abroad. In addition, the Bank is required to observe the minimum Capital Adequacy Ratio set by the regulator at 11.5% as at December 31, 2014, in addition to a 2% capital conservation buffer set by the Management.

As at December 31,

(USD millions) 2014 2013

Share capital 418 411

Preferred share 375 325

Legal reserves 78 67

Property revaluation reserve 2 2

Reserve for general banking risks 124 109

Reserves for assets acquired in satisfaction of loans 33 18

Retained earnings 222 203

Cumulative change in fair value of financial assets through other comprehensive income 12 (2)

Currency translation adjustment (59) (47)

Profit for the year 125 123

Equity attributable to the group 1,330 1,209

Non-controlling interest 171 139

Total equity 1,501 1,348

(LBP millions) December 31,

2014 2013

Credit Risk 11,969,979 11,397,461

Market Risk 592,899 436,565

Operational Risk 950,852 872,158

Risk-Weighted Assets 13,513,730 12,706,184


2014 2013

Tier I Capital 1,757,387 1,601,900

Tier II Capital 176,283 178,257

Total Eligible Capital 1,933,670 1,780,157

December 31,Capital Adequacy Ratio

2014 2013

Capital Adequacy Ratio-Tier I 13.00% 12.61%

Capital Adequacy Ratio-Tier II 1.31% 1.40%

Capital Adequacy Ratio-Tier I and II 14.31% 14.01%

Regulatory Requirements

OFF-BALANCE SHEETTrade Finance

2014 2013

Types of Transactions Number Volumes Number Volumes (USD millions) (USD millions)

Import L/Cs 1,946 1,007 1,905 801

Import Collections 1,274 124 1,198 133

Export L/Cs 265 210 241 229

Export Collections 998 643 723 224

L/G Issuance 8,340 570 8,337 1,054

Total 12,823 2,554 12,404 2,441

Bankmed’s capital structure is outlined in the below table:

(USD millions) As at December 31,

2014 2013

MANAGEMENT REPORT

60 61

In 2014, the greatest growth in the type of Trade Finance transactions was witnessed in the Export Documentary Collections whose transactions volumes handled for its customers, witnessed a year-on-year increase of 187.1% when compared with the previous year to reach USD 643 million.The number of transactions also recorded the greatest year-on-year growth of 38.0% to reach around 1,000 transactions. In addition, the average size of each ticket grew from around USD 310,000 in 2013 to around USD 644,000 in 2014.

The volume of Import Letters of Credit reached USD 1,007 million as at December 31, 2014, registering a year-on-year growth of 25.7% when compared with the year 2013, while the number of transactions increased by 2.2% from prior year. Regarding the number of Import Documentary

Fiduciary Deposits and Assets under Management increased by USD 218 million to reach USD 1,111 million as at December 31, 2014 recording a year-on-year increase of 24.4% when compared with year-end 2013.

The USD 218 million increase mainly arose from an increase in Fiduciary Deposits and Assets under Management stemming from the Bank’s entities in the Middle East. The growth was particularly driven by the business activities of SaudiMed Investment Company

Collections transactions handled on behalf of clients, it recorded a year-on-year increase of 6.3% compared to 2013 to reach 1,274 transactions, while in terms of volumes, there was a slight decrease from prior year. The transaction count of Export Letters of Credit received from overseas correspondents increased from 241 transactions in 2013 to 265 transactions in 2014, recording a year-on-year growth of 10.0%, while the average size of each ticket decreased from around USD 950,000 in 2013 to around USD 792,000 in 2014.

Despite the challenging regional environment, Bankmed was able to maintain its leading position in the issuance of Letters of Guarantee with remarkable 8,340 facilities being issued in 2014; however, the volume of Letters of Guarantees experienced a decrease from last year.

in Riyadh, Saudi Arabia, one of Bankmed’s investment arms, which is licensed and regulated by the Saudi Capital Market Authority.

It is important to note that Bankmed’s only private banking arm, BankMed Suisse in Geneva, Switzerland complements the Bank’s banking activities by offering a wide range of private banking products as well as asset management to high net worth individuals, mainly from the Middle East and the GCC region.

Fiduciary Deposits and Assets under ManagementFiduciary Deposits and Assets under Management (USD millions)

Net Income (USD millions)

INCOME STATEMENT REVIEW

The Bank’s Net Profit reached USD 133.5 million as at December 31, 2014 compared to USD 128.1 million as at December 31, 2013, registering a year-on-year increase of 4.2% and reflecting a strong momentum despite the challenging business environment. The registered profit in 2014 mirrors the strong performance in different business lines, while maintaining a prudent approach in identifying business opportunities.

It is worth noting that despite the fact that the largest portion of the income is generated in Lebanon, T-Bank remains one of the major subsidiaries of the Bank outside Lebanon, with a contribution to the consolidated bottom line of the Bank by approximately 11.1%.

Net Interest IncomeNet Interest Income (USD millions)

MANAGEMENT REPORT

62 63

Bankmed’s Net Interest Income reached USD 263.8 million as at December 31, 2014 compared to USD 220.2 million as at December 31, 2013, recording a year-on-year increase of 19.8%. This was mainly due to two major factors: a quantity effect as assets grew by 11.8% from prior year-end, and a price effect as existing assets were restructured into higher yielding longer tenor instruments.

Bankmed registered a 13.6% increase in Net Fee and Commission Income from operations which reached USD 61.9 million as at December 31, 2014 compared to USD 54.5 million as at December 31, 2013.

Net results from financial instruments classified at Fair Value Through Profit or Loss reached USD 22.4 million, an increase of 24% as at December 31, 2014 despite the moderate capital markets activity.

Gains on Financial Assets Measured at Amortized Cost decreased in 2014 to USD 60.3 million when compared to USD 122.2 million in 2013. This decrease is mainly due to the fact that 2013 registered exceptional gains deriving from the de-recognition of Financial Assets.

The core Non-Interest Revenues earned during the year can be mainly attributed to the activities of

Taken separately, interest income experienced a year-on-year growth of 17.2% and reached USD 799.6 million, while, in turn, interest expense also increased with the growth of the Deposit Base from USD 461.8 million for the year 2013 to USD 535.7 million for the year ending December 31, 2014.

Bankmed’s Treasury Services and the brokerage and investment services arm MedSecurities Investment (MedSecurities), a wholly owned subsidiary of Bankmed, as well as insurance activities in Lebanon through GroupMed Insurance Brokers (GMIB) and Demir Sigorta, the insurance company in Turkey.

The Treasury Services are ideally-positioned to help clients identify their Treasury requirements through its professional and well-experienced team and providing clients with access to both local and regional markets. It also offers Online Trading Platforms, which enable clients to conduct their FX and trading activities using downloadable web-based and mobile applications.

MedSecurities offers value-added products, brokerage and investments solutions as well as trading of different financial instruments to a growing local, regional and

Segmental Analysis of Net Interest Income by Geography The Bank’s entities’ contribution to the Net Interest Income for the year-ending 2014 was mainly distributed as follows: 63.9% from Lebanon; 34.3% from Europe; and 1.8% from the Middle East.

Net Interest Income generated in Lebanon reached USD 168.5 million as at December 31, 2014, registering a year-on-year growth of 15.4% when compared with the same period in 2013. This was mainly driven by a 12.1% year-on-year increase in Interest Income during the aforementioned period to reach USD 596.7 million.

Net Interest Income generated by the Bank’s entities in Europe reached USD 90.6 million as at December

31, 2014, registering a year-on-year growth of 28.8% when compared with the same period in 2013. This was mainly driven by a 29.4% year-on-year increase in Interest Income during the aforementioned period to reach USD 210.7 million.

Net Interest Income generated by the Bank’s entities in the Middle East, reached USD 4.7 million as at December 31, 2014 registering a year-on-year growth of 23.8% when compared with the same period in 2013. This was mainly driven by a 15.6% year-on-year increase in Interest Income during the aforementioned period to reach USD 6.8 million.

Non-Interest Income December 31,(USD millions)

2014 2013

Net fee and commission income 61.9 54.5

Net results on financial instruments at fair value through profit or loss 22.4 18.1

Gain from financial assets measured at amortized cost 60.3 122.2

Other operating income 60.0 59.1

Total 204.6 253.9

international customer base. The year 2014 was mainly characterized by a strong performance with the execution of private placements, acting as a placement agent for a venture capital investment and the launching of an in-house fund in collaboration with S&P. MedSecurities was involved in three private placements in Real Estate, Retail, and Digital Media and recognized as the highest profile deals in the market.

In addition, MedSecurities received an in-principle approval from Dubai Financial Services Authority

(DFSA) to operate in the Dubai International Financial Center (DIFC) complementing its well-positioned local presence. It expects to launch its operations in the first quarter of 2015. Revenues remained firm in 2014 compared with 2013, despite the volatility in the market. In addition, the firm managed to grow its private placements business by 83% over the same period. MedSecurities’ Assets under Custody stood at USD 1.04 billion and its average trading volume reached USD 650 million as at December 31, 2014.

December 31,(USD millions)

2014 2013

Total fee and commission income 74.8 64.3

Total fee and commission expense 12.9 9.8

Net fee and commission income 61.9 54.5

Total Operating Expenses reached USD 287.6 million as at December 31, 2014 compared to USD 275.4 million as at December 31, 2013, recording a slight year-on-year increase of 4.4%. This reflects the Management’s decision to control its expenses while focusing on specific areas of growth. The USD 12.2 million increase is mainly driven by a USD 8.2 million increase in staff expenses, followed

by a USD 2 million increase in administrative expenses, as well as a USD 2 million increase in depreciation and amortization charges. Cost to income ratio increased from 58.1% as at December 31, 2013 to 61.5% as at December 31, 2014, in line with the expansion strategy that is being implemented by the Bank.

Total Operating Expenses

Operational Expenses (USD millions)

06 | RISK MANAGEMENT

6766

06 | RISK MANAGEMENT

Bankmed’s capital adequacy is calculated at a consolidated level using the Basel III requirements of the Basel Committee on Banking Supervision (BCBS) and the local regulators’ requirements set by the Banking Control Commission of Lebanon (BCC). The Bank’s individual offshore subsidiaries are directly regulated by the respective local banking supervisors who set and monitor their capital adequacy requirements. In addition, the stand-alone capital adequacy ratio of Bankmed subsidiaries is also reported to the BCC.

The following Bankmed’s ratios are reported in accordance with the minimum capital requirement calculation methodology under Pillar I of Basel framework reported as at December 31, 2014:

Total Capital Adequacy Ratio 14.31%Tier I Capital Adequacy Ratio 13.00%Common Equity Capital Ratio 8.54%

It is important to note that following the new capital regulations set by Basel III, the Central Bank of Lebanon (BDL) issued new regulations in 2011 defining the new required capital ratios for Lebanon. In addition, the procedure includes a gradual implementation plan which starts on December 31, 2012 and ends on December 31, 2015.

* These capital requirements include a Capital Conservation buffer set at 2.5% of RWAs designed to ensure the build-up of capital outside periods of stress, which can be drawn down when losses are incurred

RISK MANAGEMENT

Stress Testing

Risk Appetite

The principles adopted for the management and control of risk and capital are described herein.

Bankmed is engaged in a wide variety of businesses; this engagement requires us to identify, measure, and manage the risks effectively, and enables us to allocate capital among these businesses properly. The Risk Management policies are in place to identify and quantify such risks, set appropriate limits in line with defined risk appetite, ensure control, and monitor adherence to the limits.

The Bank’s key risks include: Credit Risk, Market Risk, Operational Risk, Concentration Risk, Business Risk,

Stress Testing is a core component of the Bank’s Internal Capital Adequacy Assessment Process (ICAAP) and The Asset and Liability Management (ALM) processes. Stress-tests assess the ability of Bankmed to continue its operations under stressed conditions. Scenario analysis involves discussions between Risk Management and Senior Management to review the impact of the stress-tests on the Bank’s capital ratio and liquidity position. In addition, through these discussions the Management

Risk Appetite is established at Bankmed through a dialog between the businesses and Risk Management in light of the Bank’s strategy, stakeholders’ requirements, and risk-reward trade-offs.

Bankmed’s Risk Appetite is defined across five categories within the Board’s approved risk appetite framework:

• Group-level risk appetite metrics• Specific risk-type limit setting• Stakeholders’ targets (e.g. target debt rating, dividend

policy, minimum acceptable capital ratio, etc.)• Policies, procedures and controls for all types of Risks

including Compliance and Legal• Zero-tolerance statements for Reputational Risk and

Compliance

Risk Appetite defines the risk tolerance level that is translated into financial targets for Business Units

Basel Implementation in Lebanon

The Risk Management Report covers Bankmed’s Pillar III disclosures on capital and risk management as at December 31, 2014. It also provides useful information on the capital and risk profile of Bankmed Group. Stakeholders can assess the scope of Basel application and capital adequacy, risk exposures and risk assessment processes.

December 31,

Phase-in Arrangements 2012 2013 2014 2015 *

Min. Common Equity 5.0% 6.0% 7.0% 8.0%

Min. Tier I Equity 8.0% 8.5% 9.5% 10.0%

Min. Total Equity (Tier I + Tier II) 10.0% 10.5% 11.5% 12.0%

Strategic Risk, Reputational Risk, Liquidity Risk, and Compliance.

Bankmed’s Risk Management identifies and assesses the implications of relevant risks on the Bank’s operations and recommends appropriate ways to mitigate these risks.

The main focus of Risk Management is to ensure the Bank’s risk profile is in line with its risk strategy and business objectives.

ensures that the Bank has adequate capital and liquidity reserves to absorb the impact of these stressed scenarios if they were to occur. It also ensures that these scenarios are in line with the assumed stress tests’ factors. The Bank takes into account the results of stress testing when assessing its internal capital requirements where the results are included in the Bank’s ICAAP and communicated to the Board of Directors for review and feedback.

throughout the Bank. It is measured and expressed in terms of quantitative and qualitative measures, which are periodically tested against downside events.

- Quantitative measures mainly include earnings volatility vs. budget, regulatory capital adequacy, external Agency Rating target, exposure concentration limits, Value at Risk (VAR), and maximum acceptable losses etc.

- Qualitative measures are expressed in terms of policies, procedures and controls in order to limit risks that may or may not be quantifiable.

The testing of the Bank’s Strategic and Business Planning is formally conducted against the Group’s Risk Appetite in order to determine consistency with the Bank’s risk appetite and risk tolerances and adjust its Strategic Planning accordingly.

RISK MANAGEMENT

6968

Risk Measurement and Reporting

Bankmed’s Total Regulatory Capital is divided as follows:

Risk Culture

Risk Governance

REGULATORY CAPITAL

The purpose of Bankmed’s Risk Measurement and Reporting is to ensure that risks are comprehensively captured and accurately assessed, and they are reported to the Board’s Risk Committee on an ongoing basis, or more frequently as the need arises, for those risks to be efficiently managed and mitigated.

Core Capital or Common Equity Capital Core Capital or Common Equity Capital includes shareholders’ common share capital, retained earnings, and legal reserves. The book values of goodwill and intangible assets are deducted from Core Tier I Capital, and the other deductions from Common Equity is the

A strong Risk Culture helps reinforce the management of risk and return throughout the Bank. It requires a forward-looking perspective on key risk issues and a good assessment of those risks.

The principal objectives of Bankmed’s Risk Management function are to maintain, across the Bank, a strong risk culture and a robust risk policy and procedures framework.

Bankmed strongly believes that “Risk is everyone’s Business,” and that effective risk management requires a strong, robust, and pervasive risk management culture.

The above mentioned risk culture and vision required the adoption and implementation of an Enterprise Risk Management Framework (ERMF) covering Bankmed, its affiliates, and subsidiaries. Bankmed Group considers that the foundation for a successful risk management is the pragmatic and consistent implementation of a strong Risk Governance, which reflects the importance placed by the Board, the Board Risk Committee and Executive Management on shaping the Group’s risk strategy and managing risks effectively.

Bankmed primary objective is to meet regulatory capital requirements while optimizing shareholders’ value and maintaining a strong capital base to support planned expansions. The Bank’s capital adequacy is actively managed


Composition of Regulatory Capital 2014 2013 2012

Eligible Paid-Up Share Capital 630,000 620,000 620,000

Eligible Reserves and Retained Earnings and Net Income 721,535 661,743 677,126

Deductions from Common Equity (297,095) (268,982) (220,206)(Including Goodwill and Intangible Assets)

Deductions from Common Equity of Unconsolidated Banking - - (95,779)and Financial Entities’ Investments

Acceptable Minority Interests under Common Equity 107,533 80,609 56,007

Unrealized Losses on Debt Securities Classified (8,303) (14,994) (117,016)at Fair Value through OCI

Net Common Equity after Deductions 1,153,670 1,078,376 920,132

Non-Cumulative Preferred Shares 565,313 489,938 489,938

Deductions from Tier I of Unconsolidated Banking - - (15,367)and Financial Entities’ Investments

Acceptable Minority Interests Under Tier I Capital 38,405 33,587 33,604

Net Tier I Capital 1,757,387 1,601,899 1,428,306

Asset Revaluation Reserves 3,213 3,213 3,213

Unrealized Gains on Debt Securities Classified 13,268 5,706 20,723at Fair Value through OCI (Only 50% to be reported)

General Provisions 129,078 142,468 98,651

Acceptable Minority Interests Under Tier II 30,724 26,870 22,403

Total Tier II 176,283 178,257 144,990

Total Regulatory Capital (Tier I +Tier II) 1,933,670 1,780,156 1,573,296

Risk Measurement and Reporting, prepared at the Group level, are implemented in major operating subsidiaries through a common reporting model for integrated risk management and control. Each operating subsidiary is responsible for the quality and performance of its assets’ portfolio as well as reporting and monitoring all risks in those portfolios in accordance with the Group standards.

Unrealized Gross Losses on Debt Securities Classified at Fair Value through Other Comprehensive Approach (OCI). Other regulatory adjustments under Common Equity Capital entail the deduction of participating interests in unconsolidated banking and financial entities.

Risk Culture and Risk Awareness of all types of risks, including Compliance, Legal and Reputational, are key issues in the strategic decisions of the Board, Senior Management, and in every employee’s daily business.

In 2014, Risk Management has launched training programs with a consultancy firm on risk awareness in order to strengthen risk culture among all employees. Bankmed nurtures a positive learning culture by conducting internal and external risk education training seminars in addition to constant communication through day-to-day on the job interaction and periodic Business/Risk Management meetings.

The Bank’s Risk Governance is based on the following “three lines of defense:”

• Businesses, which own their risk exposures; • Risk Management, which provides an independent

oversight of risks; • Internal Audit, which evaluates the overall

effectiveness of the control environment.

and monitored using the rules and ratios established under the Basel III Accord and as adopted by the BCC. The Total Regulatory Capital (Tier I and II) in accordance with the BCC guidelines is as follows:

Tier I Capital or Additional Tier I Capital Tier I Capital is primarily composed of Non-Cumulative Preferred Shares. In 2014, Bankmed increased its Tier ICapital by USD 50 million through the issuance of 1.5 million new Series III Redeemable, Non-Cumulative and Perpetual Preferred Shares of USD 150 million at an

issue price of USD 100 per share. In parallel, Bankmed exercised a call option on USD 100 million preferred shares and redeemed 1 million Series I Preferred Shares at a redemption price of USD 100 per share.

RISK MANAGEMENT

7170

Bankmed’s Overall Capital Requirement

Credit Risk-Weighted Assets

Bankmed continues to ensure that capital is well invested in order to meet expected future requirements in the context of a more demanding regulatory environment. In addition, by increasing its capital base through the

issuance of preferred shares and increasing retained earnings, Bankmed has exceeded the Regulatory Capital minimum requirements as shown below:

Tier II Capital Tier II Capital consists of 50% of unrealized gains on listed securities classified at Fair Value through OCI. It also includes reserves arising from the Revaluation

of Properties and General Provisions held against unidentified losses which qualify for inclusion within Tier II Capital up to 1.25% Credit Risk-Weighted Assets.

CALCULATION OF CAPITAL REQUIREMENTS Bankmed’s capital requirements are calculated based on the regulatory provided formulae. Pillar I’s risk types

Bankmed Capital ratios versus Regulatory Capital Requirements as at December 31, 2014

are reported in accordance with Basel guidelines and include credit, market, and operational risks.

December 31, 2014 2013

Risk Type % of Total Requirement Capital Requirement Capital Requirement (LBP millions) (LBP millions)

Credit Risk 89% 957,598 911,797

Market Risk 4% 47,432 34,925

Operational Risk 7% 76,068 69,773

Total 100% 1,081,098 1,016,495


By Counterparty Type 2014 2013

Sovereign 2,947,653 2,380,213

Banks and FIs 963,148 1,219,458

Corporate 4,010,189 3,851,065

Small & Medium Enterprises (SMEs) 1,739,136 1,671,624

Retail 185,563 178,245

Residential Mortgage Loan 173,163 140,775

Commercial Real Estate Mortgage Loan 527,646 473,373

Other Assets 1,423,481 1,482,708

Total 11,969,979 11,397,461

Capital Requirements for Credit Risk Credit Risk exposure is disclosed in accordance with the Standardized Approach. Under this approach, exposures are assigned to portfolio segments based on the type of counterparty and/or the nature of the underlying exposure. Credit Risk generates the largest regulatory capital requirement of risks and accounted for 89% of the Bank’s overall capital requirement. Bankmed’s well diversified business activities resulted in different risk-taking by the Bank’s business divisions including investment and credit risks. The investment risk is dominated by the investment in sovereign exposure in the banking book and the trading book which gives rise to both credit and market risks. (The latter is calculated under Market Risk Capital

charge). The credit risk is originated from exposures to Financial Institutions, Corporates, Small and Medium-sized Enterprises (SMEs), Retail Lending, Home Loans, Commercial Mortgage Loans and Other Assets such as Equity Investment and Shares’ Participation, Fixed Assets, etc.

Other Assets on the regulatory balance sheet, such as Intangible Assets and Goodwill, are excluded from the calculation of the credit risk exposure value as they are deducted from capital. The credit risk exposures also exclude the assets that are classified at Fair Value through Profit and Loss.

Bankmed, its Affiliates, BDL Intermediate Circular # 282 and Subsidiaries Required Capital Ratios

(LBP millions) December 31, Year-End Year-End

2014 2013 2012 2014 2015

Risk Weighted Assets 13,513,730 12,706,184 11,720,412

Credit Risk 11,969,979 11,397,461 10,419,841

Market Risk 592,899 436,565 498,366

Operational Risk 950,852 872,158 802,204

Common Equity Tier I Capital 1,153,670 1,078,375 920,131

Tier I Capital 1,757,387 1,601,900 1,428,306

Tier II Capital 176,283 178,257 144,990

Total Tier I and Tier II 1,933,670 1,780,157 1,573,296

Common Equity Ratio 8.54% 8.49% 7.85% 7.00% 8.00%

Tier I Ratio 13.00% 12.61% 12.19% 9.50% 10.00%

Total Capital Ratio 14.31% 14.01% 13.42% 11.50% 12.00%

RISK MANAGEMENT

7372

Capital Requirements for Market RiskCapital Requirements for Operational Risk

Movement in Risk Weighted Assets in 2014

In order to calculate Market Risk regulatory capital requirement, the Standardized Approach is also adopted. Trading, investment and asset and liability management activities expose the Bank to interest rate, equity, and foreign exchange risks.

• Interest Rate Risk is the impact on banks’ earnings and market value of equity due to changes in interest rates. This risk is of two-fold: Specific and General risks. - The capital charge related to the Specific Risk

increased from LBP 17,937 million in 2013 to LBP 22,098 million in 2014, following the increase in RWA from LBP 224 billion in 2013 to LBP 276 billion in 2014.

- The capital charge related to the General Risk increased from LBP 13.4 billion in 2013 to LBP 20.5 billion in 2014, following the increase in RWA from LBP 168 billion in 2013 to LBP 257 billion in 2014.

• The total capital required to cover Risks for Equity Position increased from LBP 2,840 million in 2013 to LBP 3,826 million in 2014.

• The capital required to cover the Foreign Exchange Risk increased from LBP 730 million in 2013 to

LBP 940 million in 2014.

The capital requirements for Market Risk, calculated on assets and positions held in the trading book, are presented in the table below:


2014 2013

Market Risk Type RWA Capital Requirements RWA Capital Requirements % Change

Interest Rate-General Risk 257,089 20,567 167,713 13,417 53%

Interest Rate-Specific Risk 276,226 22,098 224,215 17,937 23%

Equity-General Risk 23,916 1,913 17,754 1,420 35%

Equity-Specific Risk 23,916 1,913 17,754 1,420 35%

Foreign Exchange Risk 11,751 940 9,130 730 29%

Total 592,899 47,432 436,565 34,925 36%

December 31, 2014 2013

(LBP millions) RWA Capital Requirements RWA Capital Requirements

Operational Risk 950,852 76,068 872,158 69,773 9%(Basic Indicator Approach)

Bankmed adopts the Basic Indicator Approach (BIA) to calculate the regulatory capital charge requirements for

Total Risk-Weighted Assets (RWAs) amounted to LBP 13,514 billion in 2014 compared to LBP 12,706 billion reported in 2013, representing a 6% year-on-year increase. The LBP 807.5 billion increase in Total RWAs toward the end of 2014 is derived from changes witnessed in Credit, Market and Operational RWAs is outlined below:

Operational Risk. The Bank’s capital requirement for Operational Risk for 2014 compared to 2013 is as follows:

• The 5% year-on-year increase witnessed in Credit RWAs was mainly driven by the ongoing growth in the Bank’s overall businesses locally and abroad.

• The 36% year-on-year increase in Market RWAs was mainly driven by a 22% year-on-year increase in the Trading Assets’ Portfolio.

Credit Risk-Weighted Assets (LBP) Market Risk Capital Requirements LBP (000)

One Year % Change in

Operational Risk Capital Requirement

RISK MANAGEMENT

7574

LEVERAGE RATIO

Stress Testing

Contingency Funding Plan

Liquidity Risk

MARKET RISK

Following the outbreak of the global financial crisis, the Basel III framework introduced the Leverage Ratio, a non-risk-based measure supplementing risk-based capital requirements. This was preceded by a decision from financial markets forcing the banking sector to reduce its leverage. The ratio captures both the on and off-balance sheet sources of the bank’s leverage and aims to restrict the build-up of excess leverage in the banking sector. This decision was necessary as the build-up of excessive on and off-balance sheet leverage in the banking system was recognized as an underlying cause of the global financial crisis. As per Basel III, banks are expected to meet a 3% Tier I Leverage Ratio, calculated by dividing Net Tier I capital by Total on and off-balance sheet exposures.

Bankmed’s exposure to changes in market behavior is captured by Stress Testing, detecting unfavorable events that could have plausible effect on the Bank.

Under Contingency Funding Plan (CFP), sources of liquidity are primarily derived from assets, repos, additional deposit gathering and to a lower extent from incremental interbank borrowings. The plan is set to cover Event Scenario in a local market. As part of the analysis

Liquidity Risk is the risk that a bank will have insufficient funds to meet its obligations.

In order to ensure an adequate Liquidity level at all times,

The Market Risk Department is an independent risk management function that reports to the Head of Risk Management Division. The Department works closely with Business Lines in Bankmed to identify and monitor market risks and define related policies and procedures. Market Risk arises from movements in interest rates, equity prices, credit spreads, foreign exchange rates and commodity prices causing a decline in earnings and economic value.

As per Basel III, banks are required to report the Leverage Ratio to their national supervisors as of January 2013 including a parallel run period. The period, spanning from January 2013 and ending in January 2017, will assess if the proposed minimum Leverage Ratio of 3% is appropriate with a view to migrating to a Pillar I requirement on January 1, 2018. In January 2014, the Basel Committee published its final Leverage Ratio framework, along with the public disclosure requirements applicable from January 1, 2015.

The BCC introduced to its Quantitative Impact Study (QIS) the calculation of the Leverage Ratio. Bankmed Leverage Ratio, based on the aforementioned equation, equaled to 6.75% as at December 31, 2014, well exceeding the minimum requirement of 3%.

Stress Testing is carried out on a regular basis and the findings are directly reported to Senior Management. The test is conducted by applying a 200 basis points Interest Rate shock on interest rate sensitive Assets and Liabilities in local and foreign currencies.

of liability runoff, historical events or statistical core deposit analysis should be considered when projecting liquidity under a CFP. In addition, prospects for loan collection and repayments are considered.

Market Risk Department monitors the funding profile and the diversification level of its funding sources as well as regulatory and internal Liquidity ratios.

Market Risk at Bankmed is overseen by the Market Risk Department as per established risk management policies and limits within which exposure to market risk is monitored, measured and controlled with strategic oversight by Asset and Liability Management Committee (ALCO). The Market Risk Department is responsible for developing and implementing market risk policy and risk measuring/monitoring methodologies and for reviewing all new trading and investment products and product limits prior to ALCO’S approval.


2014 2013

Risk-Weighted Assets 13,513,730 100% 12,706,184 100% 807,546 6%

Credit Risk 11,969,979 89% 11,397,461 90% 572,518 5%

Market Risk 592,899 4% 436,565 3% 156,334 36%

Operational Risk 950,852 7% 872,158 7% 78,694 9%

Eligible Capital 2014 % 2013 %

Tier I Capital 1,757,387 91% 1,601,900 90% 155,487 10%

Tier II Capital 176,283 9% 178,257 10% (1,974) (1% )

Total Capital 1,933,670 1,780,157 153,513 8.6%

RWAs Change 2014-2013

Capital Change 2014-2013

% Change

%

Interest Rate Risk in the Banking Book Interest Rate Risk in the Banking Book is the risk of loss arising from changes in market interest rates that could result in fluctuations in the fair value of investments or in the future cash flows.

Under the guidance of ALCO, this risk is measured

Funding Profile The Loan-to-Deposit ratio was at 39% as at December 31, 2014.

The Liquidity Coverage Ratio (LCR) and Net Stable Funding Ratio (NSFR) Bankmed adopted the early implementation of Liquidity Coverage Ratio (LCR) and Net Stable Funding Ratio

The Liquidity Coverage Ratio (LCR) The LCR ensures that the Bank maintains an adequate level of unencumbered high-quality assets in LBP and FCY that can be converted into cash to meet the 1-month Net Cash Outflow in an acute stress scenario. LCR calculation includes a minimum requirement of 60%

through interest rate gaps methodology and closely monitored by the Market Risk Department.

The Asset and Liability Management, Sungard ALM tool, is adopted to generate and monitor interest rate in the banking book.

(NSFR), the two liquidity measures introduced by Basel Committee in 2010.

effective January 1, 2015 and will be gradually increased to reach 100% on January 1, 2019. As at December 31, 2014, Bankmed’s LCR stood at 129% in LBP and 451% in FCY well above the minimum requirement.

RISK MANAGEMENT

Net Stable Funding Ratio (NSFR) Under this rule, financial institutions need to maintain a ratio above 100% effective 2018. The objective of this ratio is to ensure that long-term assets are funded with at least a minimum amount of stable liabilities in relation to their liquidity risk profiles. It aims to limit over-reliance on short-term wholesale funding during times of buoyant

market liquidity and encourage better assessment of liquidity risk across all on and off-balance sheet items. As at December 31, 2014, Bankmed’s NSFR stood at 183% in LBP and 120% in FCY exceeding the minimum regulatory requirement.

7776

OPERATIONAL RISK Operational Risk arises from inadequate or failed internal processes, people, systems and/or external events. A robust internal control coupled with quality supervision and management is integrated in managing Operational Risk as it is inherent in all the activities of the Bank, and in all interactions with external parties.

Operational Risk Management is an integrated umbrella with all underlying Operational Risk elements like Anti-Fraud, Business Continuity, and Policy and Procedure forming a part of the Operational Risk Management chain. Operational Risk Management is embedded in each Business area, and the Risk Mitigation techniques are applied to each activity, product, and processes.

The analysis of operational risk-related events, potential risk, and other early-warning signals are in focus when developing the processes. The exceptions and quality deficiencies’ issues are documented and monitored for resolution at senior levels.

Bankmed uses Key Risk Indicators (KRI) as an essential instrument for pro-active Operational Risk Management. KRIs for Human Resources, IT and Processes and

OTHER RISKS (UNDER PILLAR II) Other risks covered under Pillar II include Concentration Risk, Systemic Risk and various risks like Business Risk, Reputation Risk, Legal Risk and Compliance Risk.

Concentration RiskConcentration Risk is captured through monitoring and limits’ setting of large exposures, sector lending, collateral type, geographic spread and product type. The Bank’s credit concentration by sector, obligor and country of utilization is subject to internal limits.

Any exception over the stated limits is regularized

Systemic Risk

Lebanese regulators have imposed more stringent requirements to mitigate the effects of Systemic Risk. BDL has required an additional 1.5% to be added to the

Business Risk

Business Risk mainly arises from adverse business decisions, critical strategic choices, or unforeseen changes in the business and regulatory environment, or technological changes. At Bankmed, a specialized committee assesses the risks stemming from adopting new investments, credit products, and information

Reputation RiskAn adverse perception of the image of the Bank on the part of customers, counterparties, employees, regulators, or any other stakeholders, could give rise to Reputational Risk. Hence, their trust is an essential condition to carrying out day-to-day business operations. The Bank

Legal and Compliance RisksBreaches or non-compliance with Anti-Money Laundering (AML), Laws regulations, legislation, or ethical standards

Compliance should help predict changes in the Bank’s Operational Risk profile. They have two main targets: the prevention of Operational Risk events and the timely detection of unfavorable events.

The mitigating techniques include: preventive control measures, robust Information Security framework, strong Anti-Fraud/Compliance regime, comprehensive Physical/Access security and Business Continuity Plans together with crisis management preparation and a broad insurance coverage for handling major incidents.

Each business area at Bankmed is primarily responsible for managing its own Operational Risk. Operational Risk Management develops and maintains a framework for identifying, assessing, monitoring and controlling operational risks and supports the line organization for implementing the framework. The techniques andprocesses for managing operational risks are structured around the risk sources as described in the definition of Operational Risk. This approach improves the comparability of risk profiles throughout the organization including Bankmed’s branches and subsidiaries.

or hedged by eligible mitigates. Major mitigation actions taken by the Bank for managing Concentration Risk include: reducing limits on risk concentration; adjusting the business strategy to address excessive concentration; diversifying asset allocation; liquidating certain assets; hedging through obtaining additional collateral/guarantees.

systems acquired or developed internally. Once these risks are identified, preventive control procedures are taken into account, and the concerned business units develop the related policies and procedures in order to manage these products.

regards the management of Reputation Risk in terms of the Bank’s image, services, and products offered as an extremely serious matter. Reputational Risk is mainly mitigated by a set of policies and procedures and in line with the Bank’s Code of Ethics.

can contribute to the rise of Legal and Compliance Risks. They are mitigated by various policies and procedures.

RISK MANAGEMENT

Market Risk in Bankmed’s Subsidiaries

The Interest Rate Risk (Trading and Non-Trading) and the Liquidity Risk measurement and monitoring are performed at the subsidiary level and the consolidated results are reported to Bankmed’s Headquarters in Beirut,

Lebanon. The reports include: the Market Risk Capital Charges, Interest Rate Risk Gap Analysis, Liquidity Gap Analysis, Stress Testing and Liquidity Ratios (where applicable).

8% Minimum Capital Ratio Requirement to be allocated specifically to safeguard the banks from this risk.

07 | SUPPORT LINES

80 81

The Financial Control, Information Technology and Operations Divisions reinforced their commitment to the overall business objectives and Bankmed’s growth strategy. This was achieved through the implementation of the highest financial and reporting standards, cost

efficiency, and sound risk management practices. Bankmed’s long-term strategic plans and business decisions act as key drivers in these divisions’ planning process, where the best practices with the latest technology are incorporated.

The Financial Control Division provides accurate and timely information to the senior management and ensures that the Bank is meeting regulators’ requirements in countries where it is present and is complying with the applicable tax laws. The consolidated financial statements, as prepared by the Division, are in accordance with International Financial Reporting Standards (IFRSs) as issued by the International Accounting Standards Board (IASB). The Division formulates the financial policy of the Bank and acts as a business partner to the senior management and the separate business lines. In addition, it provides comprehensive information on financial and capital management, financial planning and reporting,

The Information Technology (IT) Division continues to provide business solutions, support infrastructure upgrades, and optimize its operational efficiency in order to support customer service. With a commitment to provide state-of-the-art technology, the year witnessed the launching of multiple projects as well as the enhancements of existing applications and systems. Within this context, some of the projects, which were successfully completed include: enhancement of the Mobile Payment Solution, a Mobile Treasury Trading Platform, the enablement of Card Mass Production with Instant Issuance, the e-mail engine and IP Telephony migration, as well as the establishment of new infrastructure specifications for the Data Center.

The Operations Division continues to focus on the development, enrichment and execution of operating models to increase efficiency, improve clients’ service levels, and reduce operational risk. The Division supports individual business lines at every stage of their respective transactions, handles complex exceptions, manages risk, and drives change. The Division ensures that all operations remain in full compliance with evolving regulatory requirements. The Division’s goal is to achieve optimum operational efficiency through the implementation of Straight-Through-Processing (STP), which simultaneously reduces risk and cost, and streamlines processing practices.

The Operations Division has enabled business to flow smoothly whenever the Bank enters new markets or launches new products. Furthermore, the Division supports Bankmed’s international branches in Limassol, Cyprus and in Baghdad, Basra and Erbil in Iraq, assuring accurate and efficient executions of every transaction.

FINANCIAL CONTROL, INFORMATION TECHNOLOGY AND OPERATIONS

LEGAL SUPPORTaccounting policy and control, as well as taxation. The Division’s main purpose remains to enhance the asset quality and to quantify and manage the risks associated with the assets and liabilities in order to maintain the flow of earnings and the long-term sustenance of the Bank.

In 2014, the Division launched the financial hub of the data warehouse in line with the Bank’s strategy to continuously strengthen its business intelligence tools and address expanding business plans and data mining needs.

The selection of the new cutting-edge universal banking system, initiated in the prior year and finalized during 2014, paved the way for a strategic long-term partnership with Oracle. In addition, a fully dedicated governance structure was established for the execution of this project. The project is expected to be completed in 2017.

Through the integration of technology, data, and processes, Bankmed is continuously meeting its customers’ evolving demands, enabling them to conduct their businesses efficiently.

The payments team continues to ensure persistent support to Bankmed’s clients by rendering timely and reliable services. Payment Operations were rewarded several Performance Excellence Awards for their exceptional quality of payment messages and financial transfers at an STP rate of above 98%.

The Operations Division is constantly working on identifying and mitigating potential risks. In case of any disruption to the normal operating environment, emergency plans including Business Contingency and Disaster Recovery Planning can be immediately activated if needed. Furthermore, continuous reviews and updates to the operational policies and procedures and special trainings on various issues such as money-laundering are in place to enable staff to detect and report suspicious transactions.

The Legal Management Unit is committed to provide Bankmed, its affiliates, and subsidiaries with continuous and efficient legal support in a timely manner. The Unit has a strategic role in an evolving and a more regulated, complex and competitive environment. The Legal Unit provides an ongoing and daily assistance and legal advice to Bankmed Group and all local and foreign branches. The Unit cooperated during year 2014 with other related Divisions and newly established branches for the drafting and updating of the Bank’s forms and policies and procedures. It also assisted in the implementation of the Foreign Account Tax Compliance Act (FATCA) proceedings. In addition, the Unit provided tailor-made solutions adapted to customers’ needs in connection with

their banking activities, investment and development strategies.

The Legal Unit during 2014 was involved in a variety of local and international transactions such as drafting, reviewing and negotiation of documentation and agreements relating to Corporate Finance, Project Finance, Trade Financing activities, establishment of funds abroad, Structured Finance, Cross Border Financing, Private Placement Transactions, Risk Participations and several complex deals’ structuring including various international club deals and syndications for local and foreign established companies, as well as opening and operations of Bankmed (Dubai) and MedSecurities Investment (Dubai).

ADMINISTRATION DIVISIONBankmed’s Administration Division ensures that all logistics to Bankmed’s head offices and branches as well as the Bank’s international branches are in place in order to maintain an uninterrupted and ongoing performance. Within this context, the Division’s dedicated team is focused on ensuring the best practices in procurement and services delivering the best quality at a minimal cost in several areas of expenditure. The Division adopts standard efficient policies to manage, utilize, and preserve fixed assets, along with the preparation of monthly general expenses report.

In order to support the Bank’s ongoing growth, the Division, and within its capacities, provides continuous architectural and civil supervision to all branches that are under construction or undergoing face-lifting. In addition, regular maintenance visits and innovated quality control are introduced in order to avoid work interruptions.

In parallel, the Division continued to deploy its services to handle the Bank’s insurance policies and monitor their abidance with the international norms and standards, ensuring that they are always concluded in the Bank’s best interest.

07 | SUPPORT LINES

SUPPORT LINES

Financial Control Division

Operations Division

Information Technology Division

82 83

MARKET AND ECONOMIC RESEARCH

TALENT MANAGEMENT AND TRAINING

INFORMATION SECURITY ANDBUSINESS CONTINUITY

CORPORATE SOCIAL RESPONSIBILITY

MARKETING AND COMMUNICATION

Headed by a former IMF Economist, the Market and Economic Research Division conducts economic and market analyses covering local, regional, and global economic developments. The Division publishes, on a weekly basis, a newsletter covering Lebanon’s economic, financial, and business sectors. The Division issues special monthly reports analyzing various sectors of the Lebanese economy, such as real estate, food production, tourism, pharmaceuticals, and other sectors. In addition, the Division, in collaboration with the Beirut Traders Association, issues “The Beirut Traders Association–

Talent Management and Training (TMT) continued to devote all of its resources and efforts to manage talents, develop careers, and facilitate staff learning, to keep Bankmed’s human power committed, competent, and productive. Simultaneously, TMT continued to offer Lebanese university students an outstanding opportunity to acquire a professional experience in the banking field. In 2014, 15,365 training hours were invested to deliver 100 training programs for 2,057 participants.

*For more information on TMT activities throughout 2014, please refer to the Human Development Section in Bankmed’s 2014 CSR report titled “Growing Stronger Together.”

*For more information on Bankmed’s CSR initiatives, please refer to Bankmed’s 2014 CSR report titled “Growing Stronger Together.”

In 2014, Bankmed’s Marketing and Communication Unit confirmed its vital role in supporting the Bank’s Retail and Corporate communication. Within its framework, the Division continued to promote new products and services, cementing further the Bank’s position as a leader in product communication. In addition to Retail campaigns, which mainly covered home loan advertisements, the

Bankmed Investment Index.” The index assesses the reality of the wholesale sector in an aim to assist the caretakers of this sector in generating educated decisions for future investments. The Division also publishes quarterly country reports, in Arabic, covering economic and business developments as well as the financial sectors in Iraq and Saudi Arabia. Furthermore, the Division supports other divisions within the Bank by providing internal reports that identify opportunities and challenges in the local, regional, or global markets. A comprehensive Training Program catering for

technical and soft arrays was offered through diversified training approaches. Distinctively, this year, most of the programs were developed and delivered by Bankmed teams, thus reflecting the cooperative team spirit amongst teams and a sense of commitment of staff. In the occasion where the required expertise was not available, TMT relied on external consultancy to fill the gap.

Unit succeeded at promoting Bankmed’s corporate image through the 70-year corporate ad campaign, which marked the Bank’s 70th anniversary.

The Marketing Division continues to set up strategies aimed at endorsing the Bank’s image locally and in countries where the Bank is present.

HUMAN RESOURCES The Human Resources (HR) plays a pivotal role in translating the Bank’s mission to support its staff and cater for their well-being and professional growth. The Division contributes effectively to Bankmed’s business strategy by aligning Human Resources functional areas with the Bank’s priorities. In order to attract and retain a skilled, competent workforce that share Bankmed’s organizational mission and vision, HR partners with the Bank’s business lines.

Bankmed’s Information Security and Business Continuity (ISBC) securely protects customers and the Bank’s information assets by adhering to and encouraging a highly security-focused culture. Bankmed has earned its customers’ trust through the professional delivery of robust and secure products and services. In addition, the business continuity plan is periodically rehearsed for execution in the event of disruption. In addition, the Bank’s employees regularly receive up-to-date

Realizing the key role it can play in prompting economic, human, environmental, as well as social and cultural development, Bankmed integrated Corporate Social Responsibility (CSR) within its business strategy. The Bank has set several principles aimed at reflecting its commitment to sustainability. Reducing the Bank’s carbon

Remuneration Policy and Practices In 2014, and in line with Central Bank of Lebanon’s Circular No. 133, Bankmed established the Remuneration Committee. The Committee established the remuneration guidelines under a well-defined policy which is the “Remuneration and Performance Evaluation Policy” or The Policy.

The Policy is designed to: safeguard the principles of sound and equitable compensation practices by

Human Resources aims to foster the professional growth and development of Bankmed’s business, making it an employer of choice as it is reflected by the Bank’s application database which exceeded 22,000 by the end of 2014. Throughout the year, the recruitment team screened more than 700 applicants and selected 163 new recruits which included 94 fresh graduates and 69 professionals. It is worth mentioning that the Bank’s new recruits are evenly distributed between genders (48% females; 52% males).

information in order to identify new risks and respond immediately to potential security hazards as well as to adopt high security measures.

Bankmed has an active Business Continuity Management Program to ensure our customers receive our products and services as intended, particularly in times of crisis. Bankmed ensures that adequate Business Continuity Plans are in place and are regularly rehearsed.

footprint emission, taking care of the environment, educating the public on the importance of being eco-friendly, supporting cultural and sports activities across the country, and developing the community by helping those who are most disadvantaged and marginalized, remain the top priorities on the Bank’s CSR list.

encouraging performance-based remuneration, and balanced Risk Management; provide a competitive compensation package; achieve internal and external equity; support the core principles of Bankmed’s compensation scheme for performance; align staff interests with those of the Bank and its stakeholders, by emphasizing incentives while considering the fact that different circumstances may warrant different target pay mixes.

SUPPORT LINES

The compensation package is a combination of fixed and variable elements, mainly: basic salary, performance-based merit, performance-based bonus, additional benefits, and severance pay.

Amounts of compensation paid annually are currently

disclosed in accordance with the International Financial Reporting Standards.

Currently, there are no claw backs or differed remuneration payments, and applying such schemes will depend on future long-term business strategies.

08 | INDEPENDENT AUDITORS’ REPORT

INDEPENDENT AUDITORS' REPORT

8786

To the ShareholdersBankmed S.A.L.Beirut, Lebanon

We have audited the accompanying consolidated financial statements of Bankmed S.A.L. and its subsidiaries (collectively the “Group”), which comprise the consolidated statement of financial position as at December 31, 2014, and the consolidated statements of profit or loss, profit or loss and other comprehensive income, changes in equity and cash flows for the year then ended, and a summary of significant accounting policies and other explanatory information.

Management’s Responsibility for the Consolidated Financial Statements

Management is responsible for the preparation and fair presentation of these financial statements in accordance with International Financial Reporting Standards, and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

Auditors’ Responsibility

Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.

Tel: +961 1 760 800Fax: +961 1 760 822/[email protected]/mena

Ernst & Young p.c.c.Commerce & Finance Building1st FloorKantari, BeirutP.O. Box: 11-1639, Riad el SolhBeirut - 1107 2090, Lebanon

A member firm of Ernst & Young Global LimitedCivil Register - 61 - Capital L.L. 6,000,000 fully paid

Tel: +961 1 760 800Fax: +961 1 760 822/[email protected]/mena

Ernst & Young p.c.c.Commerce & Finance Building1st FloorKantari, BeirutP.O. Box: 11-1639, Riad el SolhBeirut - 1107 2090, Lebanon

A member firm of Ernst & Young Global LimitedCivil Register - 61 - Capital L.L. 6,000,000 fully paid

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements, within the framework of the existing banking laws in Lebanon. The procedures selected depend on the auditors’ judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditors consider internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Opinion

In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated financial position of Bankmed S.A.L. as of December 31, 2014, and of its consolidated financial performance and consolidated cash flows for the year then ended in accordance with International Financial Reporting Standards.

Beirut, Lebanon April 13, 2015 Deloitte & Touche Ernst & Young

08 | INDEPENDENT AUDITORS’ REPORT


8988

BANKMED S.A.L.CONSOLIDATED STATEMENT OF FINANCIAL POSITION

Cash and deposits with central banks 6 4,246,672,076 4,234,924,901

Deposits with banks and financial institutions 7 1,517,252,238 2,565,970,261

Financial assets at fair value through profit or loss 8 660,826,620 539,910,164

Reverse repurchase agreements and loans to banks 9 853,981,089 198,492,122

Loans and advances to customers 10 6,861,684,290 6,481,516,008

Loans and advances to related parties 11 292,442,624 284,439,172

Investment securities 12 7,440,312,635 5,204,249,456

Customers’ acceptance liability 13 184,768,794 84,024,058

Investments in associates and other investments 14 85,397,308 125,071,655

Assets acquired in satisfaction of loans 15 439,418,106 437,346,385

Goodwill 16 176,915,027 180,230,045

Property and equipment 17 298,942,501 289,877,193

Other assets 18 186,916,876 162,969,295

Total Assets 23,245,530,184 20,789,020,715

FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISKS 40

Guarantees and standby letters of credit 2,051,556,487 1,949,781,331

Documentary and commercial letters of credit 385,488,084 492,364,557

Forward exchange contracts 861,262,317 655,472,606

FIDUCIARY DEPOSITS AND ASSETS UNDER MANAGEMENT 41 1,674,474,177 1,345,728,549

ASSETS Notes 2014 2013

LBP’000 LBP’000

December 31,

THE ACCOMPANYING NOTES 1 TO 50 FORM AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL STATEMENTS

BANKMED S.A.L.CONSOLIDATED STATEMENT OF FINANCIAL POSITION

Deposits from banks and financial institutions 19 649,477,279 581,694,664

Customers’ deposits at fair value through profit or loss 20 40,972,933 48,627,557

Customers’ deposits at amortized cost 21 17,208,933,949 15,526,699,743

Related parties’ deposits at amortized cost 22 1,025,397,069 1,083,916,658

Acceptances payable 13 184,768,794 84,024,058

Borrowings from banks and financial institutions and central banks 23 784,768,655 392,901,106

Other liabilities 25 234,264,059 208,090,172

Certificates of deposit 24 752,063,550 750,882,861

Provisions 26 102,274,918 79,449,152

Total liabilities 20,982,921,206 18,756,285,971

LIABILITIES Notes 2014 2013

Notes 2014 2013EQUITY

December 31,

December 31,

LBP’000

LBP’000

LBP’000

LBP’000

Share capital 27 630,000,000 620,000,000Preferred shares 28 565,312,500 489,937,500Legal reserve 29 116,763,107 100,511,453Property revaluation reserve 29 3,213,000 3,213,000Reserve for general banking risks and other reserves 29 187,375,906 164,818,864Reserves for assets acquired in satisfaction of loans 15, 29 50,101,022 27,385,641Retained earnings 334,808,558 306,420,725Cumulative change in fair value of financial assets through other comprehensive income 30 18,233,466 (3,581,768)

Currency translation adjustment (89,602,488) (71,330,991)Profit for the year 188,707,712 184,851,175

Equity attributable to the Group 2,004,912,783 1,822,225,599Non-controlling interest 31 257,696,195 210,509,145

Total equity 2,262,608,978 2,032,734,744

Total Liabilities and Equity 23,245,530,184 20,789,020,715


9190

BANKMED S.A.L.CONSOLIDATED STATEMENT OF PROFIT OR LOSS

Notes 2014 2013

LBP’000 LBP’000

Year Ended December 31,

Interest income 32 1,205,356,024 1,028,134,002

Interest expense 33 (807,632,226) (696,165,175)

Net interest income 397,723,798 331,968,827

Fee and commission income 34 112,771,338 96,969,827 Fee and commission expense 35 (19,437,163) (14,775,244) Net fee and commission income 93,334,175 82,194,583

Net results on financial instruments at fair value through profit or loss 36 33,790,973 27,339,098 Gain from financial assets measured at amortized cost 12 90,893,099 184,174,218 Other operating income (net) 37 90,396,564 89,000,622 Net operating revenues 706,138,609 714,677,348

Provision for credit losses (net of write-back) 10 (37,794,743) (55,371,987) Loss from write-off of loans (5,912,792) (398,997) Net operating revenues after credit losses 662,431,074 658,906,364

Staff costs (237,915,779) (225,624,398) Administrative expenses 38 (169,432,342) (166,408,144) Depreciation and amortization 15,17&18 (26,265,834) (23,219,502) Impairment of assets acquired in satisfaction of loans (478,218) (308,278) Provision for contingencies (net of write-back) 26 (19,503,038) (26,889,858) Write-back of provision for impairment of an investment in a fund 18 22,612,500 -

Profit before taxes 231,448,363 216,456,184 Income tax expense 25 (30,209,456) (23,291,171)Profit for the year 201,238,907 193,165,013

Attributable to: Equity holders of the Group 188,707,712 184,851,175 Non-controlling interest 12,531,195 8,313,838 201,238,907 193,165,013

Earnings per share: Basic/diluted earnings per share 39 2.40 2.42


BANKMED S.A.L.CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME

Profit for the year 201,238,907 193,165,013 Other comprehensive income («OCI»):Items that will not be reclassified subsequently to profit or loss:Gain on revaluation of property 17 - 29,227,714 Net gain/(loss) on financial assets at fair value through other comprehensive income 25,404,132 (67,208,531) Net loss on financial assets at fair value through other comprehensive income recycled to retained earnings 12 - 132,062,181 Income tax relating to components of OCI (3,588,898) 7,134,794 Remeasurement of defined benefit obligation (470,810) 401,804 21,344,424 101,617,962 Items that may be reclassified subsequently to profit or loss:Currency translation adjustment (35,638,264) (67,897,766) (35,638,264) (67,897,766) Net other comprehensive (loss)/income for the year (14,293,840) 33,720,196

Total comprehensive income for the year 186,945,067 226,885,209

Attributable to: Equity holders of the Group 191,780,639 252,267,208 Non-controlling interest (4,835,572) (25,381,999) 186,945,067 226,885,209

Notes 2014 2013

LBP’000 LBP’000



9392

BANKMED S.A.L.CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

Equity Attributable to the Group

LBP’000

Share Capital

LBP’000

Preferred Shares

LBP’000

LegalReserve

Property Revaluation

Reserve

LBP’000

Reserve forGeneral

Banking Risks and OtherReserves

LBP’000


LBP’000 LBP’000 LBP’000 LBP’000 LBP’000 LBP’000 LBP’000 LBP’000

Equity Attributable to the Group

Retained Earnings

Cumulative Change in Fair

Value of Financial Assets through

OtherComprehensive

Income

Currency Translation Adjustment

Profit for the Year Total Total

Balance at December 31, 2012 620,000,000 489,937,500 82,256,119 3,213,000 141,252,716 10,068,802 370,887,367 (75,570,212) (37,129,061) 182,594,402 1,787,510,633 156,250,663 1,943,761,296

Total comprehensive income - 2013 - - - 29,227,714 - - 401,805 71,988,444 (34,201,930) 184,851,175 252,267,208 (25,381,999) 226,885,209

Difference of exchange - - - - - - (1,526,727) - - - (1,526,727) - (1,526,727)

Allocation of 2012 profit - - 18,255,334 - 23,061,948 17,821,039 123,456,081 - - (182,594,402) - - -

Loss on sale of financial assets at fair value

through other comprehensive income – Note 12 - - - - - - (132,062,181) - - - (132,062,181) - (132,062,181)

Appropriation from 2012 profit to provisions for bad

and doubtful loans and advances – Note 10 - - - - - - (296,232) - - - (296,232) - (296,232)

Disposal of assets acquired in satisfaction of loans – Note 15 - - - - 504,200 (504,200) - - - - - - -

Increase in minority interest due to capital increase - - - - - - - - - - - 79,640,481 79,640,481

Transfer from property revaluation reserve to

retained earnings –Note 29 - - - (29,227,714) - - 29,227,714 - - - - - -

Dividends declared - Notes 27 and 28 - - - - - - (82,246,060) - - - (82,246,060) - (82,246,060)

Liquidation of a subsidiary - - - - - - (1,229,194) - - - (1,229,194) - (1,229,194)

Other - - - - - - (191,848) - - - (191,848) - (191,848)

Balance at December 31, 2013 620,000,000 489,937,500 100,511,453 3,213,000 164,818,864 27,385,641 306,420,725 (3,581,768) (71,330,991) 184,851,175 1,822,225,599 210,509,145 2,032,734,744

Total comprehensive income - 2014 - - - - - - (470,810) 21,815,234 (18,271,497) 188,707,712 191,780,639 (4,835,572) 186,945,067

Difference of exchange - - - - - - (4,240,634) - - - (4,240,634) - (4,240,634)

Allocation of 2013 profit - - 16,251,654 - 22,107,705 23,164,718 123,327,098 - - (184,851,175) - - -

Capital increase – Note 27 10,000,000 - - - - - (10,000,000) - - - - - -

Issuance of preferred shares - Series 3 – Note 28 - 226,125,000 - - - - - - - - 226,125,000 - 226,125,000

Redemption of preferred shares - Series 1 – Note 28 - (150,750,000) - - - - - - - - (150,750,000) - (150,750,000)

Disposal of assets acquired in satisfaction of loans – Note 15 - - - - 449,337 (449,337) - - - - - - -

Increase in minority interest due to capital increase - - - - - - - - - - - 48,839,250 48,839,250

Dividends declared - Notes 27 and 28 - - - - - - (79,803,281) - - - (79,803,281) - (79,803,281)

Acquisition of subsidiaries – Note 44 - - - - - - - - - - - 3,183,372 3,183,372

Other - - - - - - (424,540) - - - (424,540) - (424,540)

Balance at December 31, 2014 630,000,000 565,312,500 116,763,107 3,213,000 187,375,906 50,101,022 334,808,558 18,233,466 (89,602,488) 188,707,712 2,004,912,783 257,696,195 2,262,608,978

Reserve forAssets

Acquired in Satisfaction of

Loans

Non-Controlling

Interests


9594

BANKMED S.A.L.CONSOLIDATED STATEMENT OF CASH FLOWS

Notes 2014 2013

LBP’000 LBP’000


Cash flows from operating activities: Profit for the year 201,238,907 193,165,013 Adjustments for: Provision for impairment of assets acquired in satisfaction of loans (net) 15 478,218 308,278 Depreciation and amortization 15,17 &18 26,265,834 23,219,502 Provision for credit losses (net) 10 45,142,625 (895,736) Provision for collective impairment (net) 10 (7,347,882) 56,267,723 Loss from write-off of loans 5,912,792 398,997 Provision for employees’ end of service indemnity (net) 26 5,335,990 6,846,251 Provision for contingencies 26 19,065,615 26,889,858 Insurance technical provision 26 437,423 - Effect of exchange rate fluctuation on goodwill 16 4,328,540 (1,183,793) Write-back of provision for investment in a fund 18 (22,612,500) - Amortization of discount on certificates of deposit 24 1,180,689 840,620 Realized loss/(gain) on sale of financial assets at fair value through profit or loss 36 4,538,476 (1,098,283) Realized gain from financial assets at amortized cost 12 (90,893,099) (184,174,218) Unrealized gain on financial assets at fair value through profit or loss 36 (2,458,115) (33,824) Income from associates at equity method 37 (3,964,638) (14,465,209) Accretion of securities premium 5,433,875 5,069,116 Loss on sale of securities at fair value through other comprehensive income 12 - (132,062,181) Gain from sale of property and equipment 37 (354,826) (36,284) Gain on sale of assets acquired in satisfaction of loans 37 (2,806,413) (1,707,142) Gain on sale of an associate 37 4,731,216 - Currency translation adjustment (18,271,497) (34,201,930) Increase in financial assets at fair value through profit or loss (122,996,817) (210,429,008) (Increase)/decrease in reverse repurchase agreements and loans to banks (655,488,967) 13,030,043 Increase in loans and advances to customers 43 (435,520,092) (516,890,726) (Increase)/decrease in loans and advances to related parties (8,003,452) 192,267,256 Decrease in deposits with banks and financial institutions and compulsory deposits and deposits with central banks (19,654,340) (176,632,709)


Notes 2014 2013

LBP’000 LBP’000


Goodwill from acquisition of a subsidiary 16 (1,013,522) - (Increase)/decrease in other assets (7,964,325) 12,002,992 Increase in deposits from banks and financial institutions 71,857,405 18,678,407 Increase/(decrease) in other liabilities 43 23,762,951 (12,694,781) Decrease in customers’ deposits at fair value through profit or loss (7,654,624) (11,468,719) Increase in customers’ deposits at amortized cost 1,682,234,206 1,608,416,279 (Decrease)/increase in related parties’ deposits at amortized cost (58,519,589) 185,393,454 Decrease in provisions for contingencies (2,484,072) (7,816,835) Increase in minority interest 34,655,855 45,944,645 Liquidation of a subsidiary - (1,229,194) Exchange difference and other movement on retained earnings and legal reserves (4,665,173) (1,526,729) Net cash generated by operating activities 663,926,675 1,080,191,133 Cash flows from investing activities: Increase in investment securities 43 (2,127,566,684) (225,665,394) Decrease in investments in associates and other investments 43 (13,854,731) (1,676,653) Proceeds from sale of associates 52,762,500 - Decrease/(increase) in assets acquired in satisfaction of loans 43 926,882 (339,826) Increase in property and equipment (31,449,243) (26,852,781) Proceeds from sale of assets acquired in satisfaction of loans 10,503,378 4,284,996 Proceeds from sale of property and equipment 4,761,557 368,774 Net cash used in investing activities (2,103,916,341) (249,880,884) Cash flows from financing activities:Issuance of preferred shares 226,125,000 - Redemption of preferred shares (150,750,000) - Certificates of deposit - (112,539) Decrease in borrowings from banks and financial institutions 23 391,867,549 (58,531,789) Dividends paid (79,803,281) (82,246,060) Net cash generated by/(used in) financing activities 387,439,268 (140,890,388)

Net (decrease)/ increase in cash and cash equivalents (1,052,550,398) 689,419,861 Cash and cash equivalents - Beginning of year 43 2,418,196,044 1,728,776,183 Cash and cash equivalents - End of year 43 1,365,645,646 2,418,196,044


9796

1. GENERAL INFORMATIONBankmed S.A.L. (the “Bank”) is a Lebanese joint stock company, registered under Number 5261 in the Lebanese Commercial Register on August 13, 1955 and under Number 22 in the list of banks published by the Central Bank of Lebanon. The principal activities of the Bank and its subsidiaries (the Group) consist of conventional commercial and private banking through a network of 63 branches in Lebanon in addition to a branch in Cyprus and 3 branches in Iraq, a subsidiary in Switzerland, a subsidiary in Turkey (with 33 branches) and a subsidiary financial institution in Lebanon (with 6 branches). The Bank’s certificates of deposit are listed on the Luxemburg Stock Exchange. Further information on the Group’s structure is provided in Note 3A. Information on other related party transactions of the Group is provided in Note 42.

Bankmed S.A.L. is wholly owned by GroupMed (Holding) S.A.L. and its headquarters are located in Clemenceau, Beirut, Lebanon.

2. NEW AND REVISED INTERNATIONAL FINANCIAL REPORTING STANDARDS (IFRSs)2.1 Application of New and Revised International Financial Reporting Standards (IFRSs)In the current year, the Group has applied the following new and revised Standards issued by the International Accounting Standards Board (IASB) that are mandatorily effective with a date of initial application of January 1, 2014 and that are applicable to the Group:

Amendments to IFRS 10, IFRS 12, and IAS 27 Investment Entities;The amendments to IFRS 10 define an investment entity and require a reporting entity that meets the definition of an investment entity not to consolidate its subsidiaries but instead measure its subsidiaries at fair value through profit or loss in its consolidated and separate financial statements. To qualify as an investment entity, a reporting entity is required to:

• Obtain funds from one or more investors for the purpose of providing them with investment management services;• Commit to its investor(s) that its business purpose is to invest funds solely for returns from capital appreciation,

investment income, or both; and• Measure and evaluate performance of substantially all of its investments on a fair value basis. Consequential amendments have been made to IFRS 12 and IAS 27 to introduce new disclosure requirements for investment entities. The amendments require retrospective application.

Amendments to IAS32 Offsetting Financial Assets and Financial LiabilitiesThe amendments to IAS 32 clarify the requirements relating to the offset of financial assets and financial liabilities. Specifically, the amendments clarify the meaning of “currently has a legally enforceable right to set-off” and “simultaneous realization and settlement”. The amendments require retrospective application.

Amendments to IAS36 Recoverable Amount Disclosures for Non-Financial AssetsThe amendments to IAS 36 remove the requirement to disclose the recoverable amount of a cash-generating unit (CGU) to which goodwill or other intangible assets with definite useful lives had been allocated when there has been no impairment or reversal of impairment of the related CGU. Furthermore, the amendments introduce additional disclosure requirements applicable to when the recoverable amount of an asset or a CGU is measured at fair value less costs of disposal. These new disclosures include the fair value hierarchy, key assumptions and valuation techniques used which are in line with the disclosure required by IFRS 13 Fair Value Measurements. The amendments require retrospective application.

BANKMED S.A.L.NOTES TO THE FINANCIAL STATEMENTSYEAR ENDED DECEMBER 31, 2014

Amendments to IAS 39 Novation of Derivatives and Continuation of Hedge AccountingThe amendments provide relief from the requirement to discontinue hedge accounting when a derivative designated as a hedging instrument is novated under certain circumstances. The amendments also clarify that any change to the fair value of the derivative designated as a hedging instrument arising from the novation should be included in the assessment and measurement of hedge effectiveness. The amendments require retrospective application.

IFRIC 21 LeviesIFRIC 21 addresses the issue as to when to recognize a liability to pay a levy imposed by a government. The interpretation defines a levy, and specifies that the obligating event that gives rise to the liability is the activity that triggers the payment of the levy, as identified by legislation.

The application of the above new and revised Standards did not have a material impact on the disclosures and amounts reported for the current and prior years, but may affect the accounting for future transactions or arrangements.

2.2 New and revised IFRSs in issue but not yet effective The Group has not applied the following new and revised IFRSs that have been issued but not yet effective:

• Annual Improvements to IFRSs 2010-2012 Cycle that include amendments to IFRS 2, IFRS 3, IFRS 8, IFRS 13, IAS 16, IAS 38 and IAS 24.

• Annual Improvements to IFRSs 2011-2013 Cycle that include amendments to IFRS 1, IFRS 3, IFRS 13 and IAS 40.

• Amendments to IAS 19 Employee Benefits clarify the requirements that relate to how contributions from employees of third parties that are linked to service should be attributed to periods of service. In addition, the amendments permit a practical expedient if the amount of the contributions is independent of the number of years of service, in that contributions, can, but are not required, to be recognized as a reduction in the service cost in the period in which the related service is rendered.

• IFRS 15 Revenue from Contracts with Customers- establishes a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers. IFRS 15 will supersede the current revenue recognition guidance including IAS 18 Revenue, IAS 11 Construction Contracts and the related interpretations when it becomes effective. The core principle of IFRS 15 is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods and services.

• Amendments to IFRS 11 Accounting for Acquisitions of Interests in Joint Operations – provide guidance on how to account for the acquisition of a joint operation that constitutes a business as defined under IFRS 3 Business Combinations.

• Amendments to IAS 16 and IAS 38 Classification of Acceptable Methods of Depreciation and Amortization – Amendments to IAS 16 prohibit entities from using a revenue-based depreciation method for items of property, plant and equipment. The amendments to IAS 38 introduce rebuttable presumption that revenue is not an appropriate basis for amortization of an intangible asset.

• Amendments to IAS 27 Separate Financial Statements permit investments in subsidiaries, joint ventures and associates to be optionally accounted for using the equity method of accounting in separate financial statements.

1 July 2014

1 July 2014

1 July 2014

1 January 2017

1 January 2016

1 January 2016

1 January 2016

Effective for annual periodsbeginning on or after


9998

• Amendments to IFRS 10 and IAS 28 Sale or Contribution of Assets between an Investor and its Associate or Joint Venture clarify the treatment of the sale or contribution of assets from an investor to its associate or joint venture to (i) require full recognition in the investor’s financial statements of gains and losses arising on the sale or contribution of assets that constitute a business (as defined in IFRS 3 Business Combinations), (ii) require the partial recognition of gains and losses where the assets do not constitute a business; i.e. a gain or loss is recognized only to the extent of the unrelated investors’ interests in that associate or joint venture. These requirements apply regardless of the legal form of the transaction, e.g. whether the sale or contribution of assets occurs by an investor transferring shares in a subsidiary that holds the assets (resulting in loss of control of the subsidiary), or by a direct sale of the assets themselves.

• Amendments to IAS 1 Presentation of Financial Statements address perceived impediments to prepares of financial statements exercising their judgment in presenting the financial reports.

• Amendments to IFRS 10 Consolidated Financial Statements, IFRS 12 Disclosure of Interests in Other Entities and IAS 28 Investments in Associates and Joint Ventures (2011) clarify certain aspects of applying the consolidation exception for investment entities.

• Annual Improvements to IFRSs 2012-2014 Cycle that include amendments to IFRS 5, IFRS 7, IAS 19, and IAS34.

• IFRS 9 Financial Instruments (2013) was revised in November 2013 to incorporate a hedge accounting chapter and permit early application for presenting in other comprehensive income the own credit gains or losses on financial liabilities designated under the fair value option without early applying the other requirements of IFRS 9. The main amendments to hedge accounting are summarized by (i) The 80 – 125% rule for testing of hedge effectiveness is no longer required, (ii) hedge effectiveness is measured prospectively with no more consideration for retrospective testing, (iii) funding of foreign investments in foreign currency can be considered as a hedge and related foreign currency adjustment is deferred under equity, (iv) hedging instrument can be re-designated and periodically revisited to eliminate mismatch, and (v) cash flow hedge for fixed income securities classified at amortized cost has become eligible.

This version of the standard remains available for application if the relevant date of initial application is before 1 February 2015.

The final version of IFRS 9 Financial Instruments (2014) was issued in July 2014 to replace IAS 39: Financial Instruments: Recognition and Measurement. IFRS 9 (2014) incorporates requirements for classification and measurement, impairment, general hedge accounting and derecognition. The final version of IFRS 9 introduces a) new classification for debt instruments that are held to collect contractual cash flows with ability to sell, and related measurement requirement consists of “fair value through other comprehensive income (FVTOCI), and b) impairment of financial assets applying expected loss model through 3 phases, starting by 12 month expected impairment loss to be initiated on initial recognition of the credit exposure, and life time impairment loss to be recognized upon significant increase in credit risk prior to the date the credit exposure is being impaired, and phase 3 when the loan is effectively impaired. On phase 1 and 2 income from time value is recognized on the gross amount of the credit exposure and in phase 3 income is recognized on the net exposure.

Except for IFRS 9, the Directors of the Group do not anticipate that the application of these amendments will have a significant effect on the Group’s consolidated financial statements.

1 January 2016

1 January 2016

1 January 2016

1 January 2016

1 January 2018

3. SIGNIFICANT ACCOUNTING POLICIESStatement of Compliance:The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (IFRSs) as issued by the International Accounting Standards Board (IASB).

Basis of Preparation and Measurement:The consolidated financial statements have been prepared on the historical cost basis except for the following:

- Land and buildings acquired prior to 1993 are measured at their revalued amounts based on market prices prevailing during 1996, to compensate for the effect of the hyper-inflationary economy prevailing in the earlier years.

- Financial assets and liabilities at fair value through profit and loss are measured at fair value.- Equity securities at fair value through other comprehensive income are measured at fair value.- Derivative financial instruments are measured at fair value.

Assets and liabilities are grouped according to their nature and are presented in an approximate order that reflects their relative liquidity.

Certain 2013 comparative figures were reclassified to conform with the current year’s presentation.

The principal accounting policies adopted are set out below:

A. Basis of Consolidation:The consolidated financial statements of Bankmed S.A.L. incorporate the financial statements of the Bank and entities (including structured entities) controlled by the Bank and its subsidiaries. Control is achieved when the Bank:

• has power over the investee;• is exposed, or has rights, to variable returns from its involvement with the investee; and• has the ability to use its power to affect its returns.

The Bank reassesses whether or not it controls an investee if facts and circumstances indicate that there are changes to one or more of the three elements of control listed above.

When the Bank has less than a majority of the voting rights of an investee, it has power over the investee when the voting rights are sufficient to give it the practical ability to direct the relevant activities of the investee unilaterally. The Bank considers all relevant facts and circumstances in assessing whether or not the Bank’s voting rights in an investee are sufficient to give it power, including:

• the size of the Bank’s holding of voting rights relative to the size and dispersion of holdings of the other vote holders;

• potential voting rights held by the Bank, other vote holders or other parties;• rights arising from other contractual arrangements; and• any additional facts and circumstances that indicate that the Bank has, or does not have, the current ability to

direct the relevant activities at the time that decisions need to be made, including voting patterns at previous shareholders’ meetings.

Consolidation of a subsidiary begins when the Bank obtains control over the subsidiary and ceases when the Bank loses control of the subsidiary. Income and expenses of a subsidiary acquired or disposed of during the year are included in the statement of profit or loss and other comprehensive income from the date the Bank gains control until the date the Bank ceases to control the subsidiary.

Non-controlling interest represent the portion of profit or loss and net assets of subsidiaries not owned directly or indirectly by the Bank. Profit or loss and each component of other comprehensive income (OCI) are attributed to the equity holders of the Bank and to the non-controlling interests, even if this results in the non-controlling interests having a deficit balance.

When necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies into line with the Group’s accounting policies.


101100

All intra-group assets and liabilities, equity, income, expenses and cash flows relating to transactions between members of the Group are eliminated in full on consolidation.

A change in the ownership interest of a subsidiary, without a loss of control, is accounted for as an equity transaction. If the Group loses control over a subsidiary, it:

• Derecognizes the assets (including goodwill) and liabilities of the subsidiary;• Derecognizes the carrying amount of any non-controlling interests;• Derecognizes the cumulative translation differences recorded in equity;• Recognizes the fair value of the consideration received;• Recognizes the fair value of any investment retained;• Recognizes any surplus or deficit in profit or loss; and• Reclassifies the parent’s share of components previously recognised in OCI to profit or loss or retained earnings, as

appropriate, as would be required if the Group had directly disposed of the related assets or liabilities.

The consolidated subsidiaries as at December 31, 2014 comprise:

Banks and Financial Institutions:Saudi Lebanese Bank S.A.L. Lebanon 100 January 1, 1995 Commercial Banking Med-Investment Bank S.A.L. Lebanon 100 January 24, 1996 Investment Banking BankMed Suisse - S.A. Switzerland 100 August 31, 2001 Private Banking Allied Business Investment Corporation S.A.L. Lebanon 70.9 November 30, 2001 Financial and Fund Management Turkland Bank A.S. Turkey 50 January 28, 2007 Commercial Banking Saudi Med Investment Company Saudi Arabia 100 May 21, 2007 Corporate Finance Advisory and asset management Med Securities Investment Company S.A.L. Lebanon 100 November 27, 2007 Financial Institution Emkan Finance S.A.L. Lebanon 100 May 19, 2011 Financial Institution

Real Estate:Al Hana S.A.L. Lebanon 100 December 1, 1995 Owns Bank’s Premises Al Jinan S.A.L. Lebanon 100 December 1, 1995 Owns Bank’s Premises Al Shams S.A.L. Lebanon 100 December 1, 1995 Owns Bank’s Premises Centre Méditerranée S.A.L. Lebanon 100 January 16, 1996 Owns Bank’s Premises Al Hosn Real Estate II S.A.L. Lebanon 100 February 27, 2004 Owns Bank’s Premises 146 Saifi S.A.L. Lebanon 100 January 19, 2010 Owns Bank’s Premises Al Narjess Real Estate S.A.L. Lebanon 100 February 23, 2011 Real Estate Al Anshita Real Estate S.A.L. Lebanon 100 February 23, 2011 Real Estate Al Bani S.A.L. Lebanon 100 April 18, 2011 Real Estate Al Hosn Real Estate S.A.L. Lebanon 100 October 11, 2011 Real Estate Anbar Real Estate S.A.L. Lebanon 100 October 11, 2011 Real Estate Sakhret Bahr Real Estate S.A.L. Lebanon 100 October 11, 2011 Real Estate Laura Real Estate S.A.L. Lebanon 100 November 14, 2011 Real Estate Al Zomorodah Real Estate S.A.L Lebanon 100 May 28, 2012 Real Estate 528 Real Estate S.A.L Lebanon 100 May 4, 2012 Real Estate Al Sabah Real Estate S.A.L. Lebanon 100 July 4, 2012 Real Estate

Country ofIncorporation

Percentage of Ownership

Date ofAcquisition or Incorporation

BusinessActivity

Further information on the financial position and performance of the material partly-owned subsidiaries, Turkland Bank A.S. and Demir Sigorta A.S., is included under Note 45 as required by IFRS12.Disclosures of interests in other entities.

B. Business Combinations:Acquisitions of businesses are accounted for using the acquisition method. The consideration transferred in a business combination is measured at fair value, which is calculated as the sum of the acquisition-date fair values of the assets transferred by the Group, liabilities incurred by the Group to the former owners of the acquiree and the equity interests issued by the Group in exchange for control of the acquiree. Acquisition-related costs other than those associated with the issue of debt or equity securities are generally recognized in profit or loss as incurred.

The consideration transferred does not include amounts related to the settlement of pre-existing relationships. Such amounts are generally recognized in profit or loss.

Goodwill is measured as the excess of the sum of the consideration transferred, the amount of any non-controlling interests in the acquiree, and the fair value of the acquirer’s previously held equity interest in the acquiree (if any) over the net of the acquisition-date amounts of the identifiable assets acquired and the liabilities assumed. When the excess is negative, the Group re-assesses whether it has correctly identified all of the assets acquired and all of the liabilities assumed and reviews the procedures used to measure the amounts to be recognised at the acquisition date. If the reassessment still results in an excess of the fair value of net assets acquired over the aggregate consideration transferred, then the gain is recognized in profit or loss.

Non-controlling interests in the net assets (excluding goodwill) of consolidated subsidiaries and associates are identified separately from the Group’s equity therein.

Non-controlling interests that are present ownership interests and entitle their holders to a proportionate share of the entity’s net assets in the event of liquidation may be initially measured either at fair value or at the non-controlling interests’ proportionate share of the recognized amounts of the acquiree’s identifiable net assets. The choice of measurement basis is made on a transaction-by-transaction basis. Other types of non-controlling interests are measured at fair value or, when applicable, on the basis specified in another IFRS.


Percentage of Ownership

Date ofAcquisition or Incorporation

BusinessActivity

Insurance:GroupMed Insurance Brokers S.A.L. (GMIB) Lebanon 100 May 20, 2003 Insurance Brokerage Demir Sigorta A.S. Turkey 55 April 17, 2013 Insurance Company Group Med Insurance Brokers- Saudi Arabia Saudi Arabia 55 June 20, 2014 Insurance Brokerage Continental Trust Insurance and Reinsurance S.A.L. Lebanon 100 December 29, 2014 Insurance Company

Other:Méditerranée Investment Holding Lebanon 100 December 24, 1996 Investment in shares and management of companies Medfinance Holding Ltd. BVI 100 January 1, 2003 Any activity outside of BVI Med Properties Management S.A.L. Lebanon 100 January 15, 2009 Real estate management services Med Properties S.A.L. Holding Lebanon 100 April 23, 2008 Investment in shares and management of companies Cynvest S.A.L. Holding Lebanon 100 December 23, 2008 Investment in shares and management of companies GroupMed Advisory Services Limited Cyprus 100 January 26, 2008 Investment in shares and management of companies


103102

When the consideration transferred by the Group in a business combination includes assets or liabilities resulting from a contingent consideration arrangement, the contingent consideration is measured at its acquisition-date fair value and included as part of the consideration transferred in a business combination. Changes in the fair value of the contingent consideration that qualify as measurement period adjustments are adjusted retrospectively, with corresponding adjustments against goodwill. Measurement period adjustments are adjustments that arise from additional information obtained during the ‘measurement period’ (which cannot exceed one year from the acquisition date) about facts and circumstances that existed at the acquisition date.

The subsequent accounting for changes in the fair value of the contingent consideration that do not qualify as measurement period adjustments depends on how the contingent consideration is classified. Contingent consideration that is classified as equity is not remeasured at subsequent reporting dates and its subsequent settlement is accounted for within equity. Contingent consideration that is classified as an asset or a liability is remeasured at subsequent reporting dates in accordance with IAS 39, or IAS 37 Provisions, Contingent Liabilities and Contingent Assets, as appropriate, with the corresponding gain or loss being recognised in profit or loss.

When a business combination is achieved in stages, the Group’s previously held equity interest in the acquiree is remeasured to its acquisition-date fair value and the resulting gain or loss, if any, is recognised in profit or loss. Amounts arising from interests in the acquiree prior to the acquisition date that have previously been recognised in other comprehensive income are reclassified to profit or loss where such treatment would be appropriate if that interest were disposed of.

If the initial accounting for a business combination is incomplete by the end of the reporting period in which the combination occurs, the Group reports provisional amounts for the items for which the accounting is incomplete. Those provisional amounts are adjusted during the measurement period (see above), or additional assets or liabilities are recognised, to reflect new information obtained about facts and circumstances that existed at the acquisition date that, if known, would have affected the amounts recognised at that date.

A change in the ownership interest of a subsidiary, without a loss of control, is accounted for as an equity transaction.

C. Foreign Currencies:The consolidated financial statements are presented in Lebanese pounds (“LBP”), which is the Group’s reporting currency. However, the primary currency of the economic environment in which the Group operates (functional currency) is the U.S. Dollar (“USD”). The exchange rate of the USD against the LBP has been constant for several years.

In preparing the financial statements of each individual group entity, transactions in currencies other than the entity’s functional currency (foreign currencies) are recognized at the rates of exchange prevailing at the dates of the transactions. At the end of each reporting period, monetary items denominated in foreign currencies are retranslated at the rates prevailing at that date. Non-monetary items carried at fair value that are denominated in foreign currencies are retranslated at the rates prevailing at the date when the fair value was determined. Non-monetary items that are measured in terms of historical cost in a foreign currency are not retranslated.

Exchange differences on monetary items are recognized in profit or loss in the period in which they arise except for exchange differences on transactions entered into in order to hedge certain foreign currency risks, and except for exchange differences on monetary items receivable from or payable to a foreign operation for which settlement is neither planned nor likely to occur in the foreseeable future, which are recognized in other comprehensive income, and presented in the translation reserve in equity. These are recognized in profit or loss on disposal of the net investment.

For the purposes of presenting consolidated financial statements, the assets and liabilities of the Group’s foreign operations are translated into Lebanese Pound using exchange rates prevailing at the end of each reporting period. Income and expense items are translated at the average exchange rates for the period, unless exchange rates fluctuate significantly during that period, in which case the exchange rates at the dates of the transactions are used. Exchange differences arising, if any, are recognized in other comprehensive income and accumulated in equity (attributed to non-controlling interests as appropriate). Such exchange differences are recognized in profit or loss in the period in which the foreign operation is disposed of. In addition, in relation to a partial disposal of a subsidiary that does not result in the Group losing control over the subsidiary, the proportionate share of accumulated exchange differences are re-attributed to non-controlling interests and are not recognized in profit or loss.

Goodwill and fair value adjustments on identifiable assets and liabilities acquired arising on the acquisition of a foreign operation are treated as assets and liabilities of the foreign operation and translated at the rate of exchange prevailing at the end of each reporting period. Exchange differences arising are recognized in other comprehensive income.

D. Financial Assets and Liabilities:Recognition and Derecognition:

The Group initially recognizes loans and advances, deposits debt securities issued and subordinated liabilities on the date that they are originated. All other financial assets and liabilities are initially recognized on the trade date at which the Group becomes a party to the contractual provisions of the instrument.

Financial assets and liabilities are initially measured at fair value. Transaction costs that are directly attributable to the acquisition or issue of financial assets and financial liabilities (other than financial assets and financial liabilities at fair value through profit or loss) are added to or deducted from the fair value of the financial assets or financial liabilities, as appropriate, on initial recognition. Transaction costs directly attributable to the acquisition of financial assets or financial liabilities at fair value through profit or loss are recognized immediately in profit or loss.

A financial asset (or a part of a financial asset, or a part of a group of similar financial assets) is derecognized, when the contractual rights to the cash flows from the financial asset expire.

In instances where the Group is assessed to have transferred a financial asset, the asset is derecognized if the Group has transferred substantially all the risks and rewards of ownership. Where the Group has neither transferred nor retained substantially all the risks and rewards of ownership, the financial asset is derecognized only if the Group has not retained control of the financial asset. The Group recognizes separately as assets or liabilities any rights and obligations created or retained in the process.

On derecognition of a financial asset measured at amortized cost, the difference between the asset’s carrying amount and the sum of the consideration received and receivable is recognized in profit or loss.

Upon derecognition of a financial asset that is classified as fair value through other comprehensive income, the cumulative gain or loss previously accumulated in the investments revaluation reserve is not reclassified to profit or loss, but is reclassified to retained earnings.

Debt securities exchanged against securities with longer maturities with similar risks, and issued by the same issuer, are not derecognized because they do not meet the conditions for derecognition. Premiums and discounts derived from the exchange of said securities are deferred to be amortized as a yield enhancement on a time proportionate basis, over the period of the extended maturities. A financial liability (or a part of a financial liability) can only be derecognized when it is extinguished, that is when the obligation specified in the contract is either discharged, cancelled or expires.

The difference between the carrying amount of the financial liability derecognized and the consideration paid and payable, including any non-cash assets transferred or liabilities assumed, is recognized in profit or loss.

Day 1 gain or loss

When the transaction price differs from the fair value of other observable current market transactions in the same instrument or based on a valuation technique whose variables include only data from observable markets, the Group immediately recognizes the difference between the transaction price and fair value as a “Day 1 gain or loss” in the consolidated statement of profit or loss. In cases where fair value is determined using data which is not observable, the difference between the transaction price and model value is only recognized in the consolidated statement of profit or loss when the inputs become observable, or when the instrument is derecognized.

Repurchase and Reverse Repurchase Agreements:

Securities sold under agreements to repurchase at a specified future date (“repos”) are not derecognized from the consolidated statement of financial position. The corresponding cash received, including accrued interest, is recognized on the consolidated statement of financial position reflecting its economic substances as a loan to the Group. The difference between the sale and repurchase prices is treated as interest expense and is accrued over the life of the agreement using the effective interest rate method.


105104

Conversely, securities purchased under agreements to resell at a specified date are not recognized in the consolidated statement of financial position. The consideration paid, including accrued interest is recorded in the consolidated statement of financial position reflecting the transaction’s economic substance as a loan by the Group. The difference between the purchase and resale prices is treated as interest income in the consolidated statement of profit or loss and is accrued over the life of the agreement using the effective interest rate method.

Offsetting:

Financial assets and liabilities are set off and the net amount is presented in the statement of financial position when, and only when, the Group has a legal right to set off the amounts or intends either to settle on a net basis or to realize the asset and settle the liability simultaneously.

Fair Value Measurement:

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value measurement is based on the presumption that the transaction to sell the asset or transfer the liability takes place either:

• In the principal market for the asset or liability; or• In the absence of a principal market, in the most advantageous market for the asset or liability.

The principal or the most advantageous market must be accessible by the Group. The fair value of an asset or a liability is measured using the assumptions that market participants would use when pricing the asset or liability, assuming that market participants act in their economic best interest.

A fair value measurement of a non-financial asset takes into account a market participant’s ability to generate economic benefits by using the asset in its highest and best use or by selling it to another market participant that would use the asset in its highest and best use.

The Group uses valuation techniques that are appropriate in the circumstances and for which sufficient data are available to measure fair value, maximising the use of relevant observable inputs and minimising the use of unobservable inputs.

All assets and liabilities for which fair value is measured or disclosed in the financial statements are categorized within the fair value hierarchy, described as follows, based on the lowest level input that is significant to the fair measurement as a whole:

• Level 1 – Quoted (unadjusted) market prices in active markets for identical assets or liabilities• Level 2 – Valuation techniques for which the lowest level input that is significant to the fair value measurement is

directly or indirectly observable.• Level 3 – Valuation techniques for which the lowest level input that is significant to the fair value measurement is

unobservable.

For assets and liabilities that are recognized in the financial statements on a recurring basis, the Group determines whether transfers have occurred between Levels in the hierarchy by re-assessing categorization (based on the lowest level input that is significant to the fair value measurement as a whole) at the end of each reporting period.

For the purpose of fair value disclosures, the Group has determined classes of assets and liabilities on the basis of the nature, characteristics and risks of the asset or liability and the level of the fair value hierarchy as explained above.

Impairment of Financial Assets:

Financial assets that are measured at amortised cost are assessed for impairment at the end of each reporting period. Financial assets are considered to be impaired when there is objective evidence that, as a result of one or more events that occurred after the initial recognition of the financial assets, the estimated future cash flows of the asset have been affected.

Objective evidence of impairment could include:

• significant financial difficulty of the issuer or counterparty; or• breach of contract, such as a default or delinquency in interest or principal payments; or

• it becoming probable that the borrower will enter bankruptcy or financial re-organization; or • the disappearance of an active market for that financial asset because of financial difficulties; or• significant or prolonged decline in fair value beyond one business cycle that occurred after the initial recognition of

the financial asset or group of financial assets which impacted the estimated future cash flows of the investment.

For certain categories of financial asset, such as loans and advances, assets that are assessed not to be impaired individually are, in addition, assessed for impairment on a collective basis. This provision is estimated based on various factors including credit ratings allocated to a borrower or group of borrowers, the current economic conditions, the experience the Group has had in dealing with a borrower or group of borrowers and available historical default information, as well as observable changes in national or local economic conditions that correlate with default on loans and advances.

The amount of the impairment loss recognised is the difference between the asset’s carrying amount and the present value of estimated future cash flows reflecting the amount of collateral and guarantee, discounted at the financial asset’s original effective interest rate.

If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognised, the previously recognised impairment loss is reversed through profit or loss to the extent that the carrying amount of the investment at the date the impairment is reversed does not exceed what the amortised cost would have been had the impairment not been recognised.

Collateral Valuation:

The Group seeks to use collateral, where possible, to mitigate its risks on financial assets. The collateral comes in various forms, such as cash, securities, letters of credit/guarantees, real estate, other non-financial assets and credit enhancements such as netting agreements. The fair value of collateral is generally assessed, at a minimum, at inception and periodically updated based on the Group’s policies and type of collateral.

To the extent possible, the Group uses active market data for valuing financial assets held as collateral. Other financial assets which do not have readily determinable market value are valued using models. Non-financial collateral, such as real estate, is valued based on data provided by third parties, such as independent accredited experts and other independent sources.

E. Classification of Financial Assets:All recognized financial assets are measured in their entirety at either amortized cost or fair value, depending on their classification. Debt Instruments:

Non-derivative debt instruments that meet the following two conditions are subsequently measured at amortized cost, less impairment loss (except for debt investments that are designated as at fair value through profit or loss on initial recognition):

• They are held within a business model whose objective is to hold the financial assets in order to collect the contractual cash flows, rather than to sell the instrument prior to its contractual maturity to realize its fair value changes, and

• The contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.

Debt instruments which do not meet both of these conditions are measured at fair value through profit or loss (“FVTPL”). In addition, debt instruments that meet the amortized cost criteria but are designated as at FVTPL are measured at FVTPL.

Even if a debt instrument meets the two amortized cost criteria above, it may be designated as at FVTPL upon initial recognition if such designation eliminates or significantly reduces a measurement or recognition inconsistency that would otherwise arise from measuring assets or liabilities or recognizing the gains and losses on them on different bases.


107106

Equity Instruments:

Investments in equity instruments are classified as at FVTPL, unless the Group designates an investment that is not held for trading as at fair value through other comprehensive income (“FVTOCI”) on initial recognition (see below).

Financial assets at FVTPL are measured at fair value at the end of each reporting period, with any gains or losses arising on re-measurement recognized in profit or loss. On initial recognition, the Group can make an irrevocable election (on an instrument-by-instrument basis) to designate investments in equity instruments at fair value through other comprehensive income (“FVTOCI”). Investments in equity instruments at FVTOCI are measured at fair value. Gains and losses on such equity instruments are recognized in other comprehensive income, accumulated in equity and are never reclassified to profit or loss. Only dividend income is recognized in profit or loss unless the dividend clearly represents a recovery of part of the cost of the investment, in which case it is recognized in other comprehensive income. Cumulative gains and losses recognized in other comprehensive income are transferred to retained earnings on disposal of an investment.

Designation at FVTOCI is not permitted if the equity investment is held for trading.

A financial asset is held for trading if:

• it has been acquired principally for the purpose of selling it in the near term; or• on initial recognition it is part of a portfolio of identified financial instruments that the Group manages together and

has evidence of a recent actual pattern of short-term profit-taking; or• it is a derivative that is not designated and effective as a hedging instrument or a financial guarantee.

Reclassification:

Financial assets are reclassified between FVTPL and amortized cost or vice versa, if and only if, the Group’s business model objective for its financial assets changes so its previous model assessment would no longer apply. When reclassification is appropriate, it is done prospectively from the reclassification date.

Reclassification is not allowed where:

• the other comprehensive income option has been exercised for a financial asset, or • the fair value option has been exercised in any circumstance for a financial instrument.

F. Loans and Advances:Loans and advances are non-derivative financial assets that have fixed or determinable payments that are not quoted in an active market. Loans and receivables are measured at amortized cost, less any impairment. Interest income is recognized by applying the effective interest rate. Non-performing loans and advances to customers are stated net of unrealized interest and provision for credit losses because of doubts and the probability of non-collection of principal and/or interest.

G. Financial Liabilities and Equity Instruments Issued by the Group:

Classification as Debt or Equity:

Debt and equity instruments issued by a group entity are classified as either financial liabilities or as equity in accordance with the substance of the contractual arrangements and the definitions of a financial liability and an equity instrument.

An equity instrument is any contract that evidences a residual interest in the assets of an entity after deducting all of its liabilities. Equity instruments issued by the Group are recognized at the proceeds received, net of direct issue costs. Financial Liabilities at Fair Value Through Profit or Loss:

Financial liabilities are classified as at FVTPL when the financial liability is either held for trading or it is designated as at FVTPL.

A financial liability is classified as held for trading if:

• it has been acquired principally for the purpose of repurchasing it in the near term; or• on initial recognition it is part of a portfolio of identified financial instruments that the Group manages together and

has a recent actual pattern of short-term profit-taking; or • it is a derivative, except for a derivative that is a financial guarantee contract or a designated and effective hedging

instrument.

A financial liability other than a financial liability held for trading may be designated as at FVTPL upon initial recognition if:

• such designation eliminates or significantly reduces a measurement or recognition inconsistency that would otherwise arise; or

• the financial liability forms part of a group of financial assets or financial liabilities or both, which is managed and its performance is evaluated on a fair value basis, in accordance with the Group’s documented risk management or investment strategy, and information about the grouping is provided internally on that basis; or

• it forms part of a contract containing one or more embedded derivatives, and the entire combined contract is designated as at FVTPL in accordance with IFRS 9.

Financial liabilities at FVTPL are stated at fair value. Any gains or losses arising on remeasurement of held-for-trading financial liabilities are recognised in profit or loss. Such gains or losses that are recognised in profit or loss incorporate any interest paid on the financial liabilities and are included in the “Net interest and gain and loss on liabilities at FVTPL” in the consolidated statement of profit or loss.

However, for non-held-for-trading financial liabilities that are designated as at FVTPL, the amount of change in the fair value of the financial liability that is attributable to changes in the credit risk of that liability is recognised in other comprehensive income, unless the recognition of the effects of changes in the liability’s credit risk in other comprehensive income would create or enlarge an accounting mismatch in profit or loss. The remaining amount of change in the fair value of liability is recognised in profit or loss. Changes in fair value attributable to a financial liability’s credit risk that are recognised in other comprehensive income are not subsequently reclassified to profit or loss.

Financial Liabilities Subsequently Measured at Amortised Cost:

Financial liabilities that are not held-for-trading and are not designated as at FVTPL are measured at amortised cost at the end of subsequent accounting periods. The carrying amounts of financial liabilities that are subsequently measured at amortised cost are determined based on the effective interest method.

Financial Guarantee Contract Liabilities:

Financial guarantees contracts are contracts that require the Group to make specified payments to reimburse the holder for a loss it incurs because a specified debtor fails to make payment when due in accordance with the terms of a debt instrument. These contracts can have various judicial forms (guarantees, letters of credit, credit-insurance contracts).

Financial guarantee contract liabilities are measured initially at their fair values and, if not designated at FVTPL, are subsequently measured at the higher of:

• the amount of the obligation under the contract, as determined in accordance with IAS 37 Provisions, Contingent Liabilities and Contingent Assets; and

• the amount initially recognized less, where appropriate, cumulative amortization recognized in accordance with the revenue recognition policies set out above.

H. Derivative Financial Instruments:

Derivative financial instruments including foreign exchange contracts, currency and interest rate swaps, (both written and purchased) are initially measured at fair value at the date the derivative contract is entered into and are subsequently re-measured to their fair value at each statement of financial position date. All derivatives are carried at their fair value as assets where the fair value is positive and as liabilities where the fair value is negative. The resulting gain or loss is recognized in the income statement immediately unless the derivative is designated and effective as a hedge instrument in which event the timing of the recognition in the statement of profit or loss depends on the


109108

hedge relationship. The Group designates certain derivatives as either hedges of the fair value recognized assets or liabilities or firm commitments (fair value hedges), hedges of highly probable forecast transactions or hedges of foreign currency risk of firm commitments (cash flow hedges), or hedges of net investments in foreign operations.

Fair values are generally obtained by reference to quoted market prices, discounted cash flow models or pricing models as appropriate as indicated under Note 3D.

Embedded Derivatives:

Derivatives embedded in other financial instruments or other host contracts with embedded derivatives are treated as separate derivatives when their risks and characteristics are not closely related to those of the host contracts and the host contract:

• is not measured at fair value with changes in fair value recognized in profit or loss.• is not an asset within the scope of IFRS 9.

Hedge Accounting:

The Group makes use of derivative instruments to manage exposures to interest rate, foreign currency and credit risks, including exposures arising from forecast transactions and firm commitments. In order to manage particular risks, the Group applies hedge accounting for transactions which meet the specified criteria.

At inception of the hedge relationship, the Group formally documents the relationship between the hedged item and the hedging instrument, including the nature of the risk, the objective and strategy for undertaking the hedge and the method that will be used to assess the effectiveness of the hedging relationship.

At each hedge effectiveness assessment date, a hedge relationship must be expected to be highly effective on a prospective basis and demonstrate that it was effective (retrospective effectiveness) for the designated period in order to qualify for hedge accounting. A formal assessment is undertaken to ensure the hedging instrument is expected to be highly effective in offsetting the designated risk in the hedged item, both at inception and at each quarter end on an ongoing basis. A hedge is expected to be highly effective if the changes in fair value or cash flows attributable to the hedged risk during the period for which the hedge is designated are expected to offset in a range of 80% to 125% and are expected to achieve such offset in future periods. Hedge ineffectiveness is recognized in the consolidated statement of profit or loss in “Net results on financial instruments at fair value through profit or loss”. For situations where that hedged item is a forecast transaction, the Group also assesses whether the transaction is highly probable and presents an exposure to variations in cash flows that could ultimately affect the consolidated statement of profit or loss.

Fair Value Hedge:

Changes in the fair value of derivatives that are designated and qualify as fair value hedges are recorded in profit or loss immediately, together with any changes in the fair value of the hedged item that are attributable to the hedged risk. The change in the fair value of the hedging instrument and the change in the hedged item attributable to the hedged risk are recognized in the line of the statement of profit or loss relating to the hedged item.

Hedge accounting is discontinued when the Group revokes the hedging relationship, the hedging instrument expires or is sold, terminated, or exercised, or no longer qualifies for hedge accounting. The adjustment to the carrying amount of the hedged item arising from the hedged risk is amortized to profit or loss from that date.

Cash Flow Hedge:

The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow hedges is recognized in other comprehensive income. The gain or loss relating to the ineffective portion is recognized immediately in profit or loss.

Amounts previously recognized in other comprehensive income and accumulated in equity are reclassified to profit or loss in the periods when the hedged item is recognized in profit or loss, in the same line of the income statement as the recognized hedged item. However, when the forecast transaction that is hedged results in the recognition of a non-financial asset or a non-financial liability, the gains and losses previously deferred in equity are transferred from equity and included in the initial measurement of the cost of the asset or liability.

Hedge accounting is discontinued when the Group revokes the hedging relationship, the hedging instrument expires or is sold, terminated, or exercised, or no longer qualifies for hedge accounting. Any cumulative gain or loss deferred in equity at that time remains in equity and is recognized when the forecast transaction is ultimately recognized in profit or loss. When a forecast transaction is no longer expected to occur, the cumulative gain or loss that was deferred in equity is recognized immediately in profit or loss.

Hedges of Net Investments in Foreign Operations:

Hedges of net investments in foreign operations are accounted for similarly to cash flow hedges. Any gain or loss on the hedging instrument relating to the effective portion of the hedge is recognized in other comprehensive income and accumulated in the foreign currency translation reserve. The gain or loss relating to the ineffective portion is recognized immediately in profit or loss.

Gains and losses accumulated in the foreign currency translation reserve are reclassified to profit or loss on disposal of the foreign operation.

I. Investments in Associates:An associate is an entity over which the Group has significant influence. Significant influence is the power to participate in the financial and operating policy decisions of the investee, but is not control or joint control over those policies.

The considerations made in determining significant influence are similar to those necessary to determine control over subsidiaries. The results and assets and liabilities of associates, except where the Group has control over the associates’ financial and operating policies, are incorporated in the consolidated financial statements using the equity method of accounting, except when the investment is classified as held for sale, in which case it is accounted for under IFRS 5 Non-current Assets Held-for-Sale and Discontinued Operations. Under the equity method, an investment in an associate is initially recognized in the consolidated statement of financial position at cost and adjusted thereafter to recognize the Group’s share of the profit or loss and other comprehensive income of the associate. When the Group’s share of losses of an associate exceeds the Group’s interest in that associate, the Group discontinues recognizing its share of further losses. Additional losses are recognized only to the extent that the Group has incurred legal or constructive obligations or made payments on behalf of the associate.

Any excess of the cost of acquisition over the Group’s share of the net fair value of the identifiable assets, liabilities and contingent liabilities of an associate recognized at the date of acquisition is recognized as goodwill. The goodwill is included within the carrying amount of the investment. Any excess of the Group’s share of the net fair value of the identifiable assets, liabilities and contingent liabilities over the cost of acquisition, after reassessment, is recognized immediately in profit or loss.

The entire carrying amount of the investment (including goodwill) is tested for impairment in accordance with IAS 36 Impairment of Assets as a single asset by comparing its recoverable amount (higher of value in use and fair value less costs to sell) with its carrying amount, Any impairment loss recognized forms part of the carrying amount of the investment. Any reversal of that impairment loss is recognized in accordance with IAS 36 to the extent that the recoverable amount of the investment subsequently increases.

The Group discontinues the use of the equity method from the date when the investment ceases to be an associate or when the investment is classified as held for sale. When the Group retains an interest in the former associate or joint venture and the retained interest is a financial asset, the Group measures the retained interest at fair value at that date and the fair value is regarded as its fair value on initial recognition. The difference between the carrying amount of the associate at the date the equity method was discontinued, and the fair value of any retained interest and any proceeds from disposing of a part interest in the associate is included in the determination of the gain or loss on disposal of the associate. In addition, the Group accounts for all amounts previously recognized in other comprehensive income in relation to that associate on the same basis as would be required if that associate had directly disposed of the related assets or liabilities. Therefore, if a gain or loss previously recognized in other comprehensive income by that associate would be reclassified to profit or loss on the disposal of the related assets or liabilities, the Group reclassifies the gain or loss from equity to profit or loss (as a reclassification adjustment) when the equity method is discontinued.

When the Group reduces its ownership interest in an associate but the Group continues to use the equity method, the Group reclassifies to profit or loss the proportion of the gain or loss that had previously been recognized in other


111110

comprehensive income relating to that reduction in ownership interest if that gain or loss would be reclassified to profit or loss on the disposal of the related assets or liabilities.

When a Group entity transacts with an associate of the Group, profits and losses resulting from the transactions with the associate are recognized in the Group’s consolidated financial statements only to the extent of interests in the associate that are not related to the Group.

The financial statements of the associates are prepared for the same reporting period of the Group.

J. Property and Equipment:Property and equipment except for buildings acquired prior to 1993 are stated at historical cost, less accumulated depreciation and any impairment loss. Buildings acquired prior to 1993 are stated at their revalued amounts, based on market prices prevailing during 1996 less accumulated depreciation and impairment loss, if any. Resulting revaluation surplus is reflected under “Equity”.

“Land held for banking operations” are measured at fair value at the date of the revaluation less impairment losses. Valuations are performed with sufficient frequency to ensure that the fair value of a revalued asset does not differ from its carrying amount.

A revaluation surplus is recorded in OCI and credited to the asset revaluation reserve in equity. However, to the extent that it reserve a revaluation deficit of the same asset previously recognized in profit or loss, the increase is recognized in profit and loss. A revaluation deficit is recognized in the statement of profit or loss, except to the extent that it offsets an existing surplus on the same asset recognized in the asset revaluation reserve.

Depreciation of property and equipment, other than land and advance payments on capital expenditures, is calculated systematically using the straight-line method over the estimated useful lives of the related assets using the following annual rates:

Buildings 2% Office improvements and installations 12.5 % - 20% Furniture 8% - 20% Equipment and machines 7% - 25% Computer equipment 20% - 33.33% Vehicles 10% - 20%

An item of property and equipment is derecognized upon disposal or when no future economic benefits are expected from its use or disposal. Any gain or loss arising on derecognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is recognized under “Other operating income” in the consolidated statement of profit or loss in the year the asset is derecognized.

On January 1, 2013, the Group elected to change the method of accounting for land held for banking operations classified in property and equipment. After initial recognition, the Group uses the revaluation model, whereby land held for banking operations will be measured at fair value at the date of the revaluation less any subsequent accumulated depreciation and subsequent accumulated impairment losses. The Group applied the exemptions in IAS 8, which exempts this change in accounting policy from retrospective application and extensive disclosure requirements.

K. Intangible Assets other than Goodwill:

Intangible assets consisting of computer software are amortized over a period of three years and are subject to impairment testing. Subsequent expenditure on software assets is capitalized only when it increases the future economic benefits embodied in the specific asset to which it relates. All other expenditure is expensed as incurred.

L. Goodwill:

Goodwill arising on an acquisition of a business is carried at cost as established at the date of acquisition of the business. Refer to Note 3B for the measurement of goodwill at initial recognition. Subsequent to initial recognition, goodwill is measured at cost less accumulated impairment losses, if any.

For the purpose of impairment testing, goodwill is allocated to each of the Group’s cash-generating units expected to benefit from the synergies of the combination. Cash-generating units to which goodwill has been allocated are tested for impairment annually, or more frequently when there is an indication that the unit may be impaired. If the recoverable amount of the cash-generating unit is less than the carrying amount of the unit, the impairment loss is allocated first to reduce the carrying amount of any goodwill allocated to the unit and then to the other assets of the unit pro-rata on the basis of the carrying amount of each asset in the unit. An impairment loss recognized for goodwill is not reversed in a subsequent period.

On disposal of the relevant cash-generating unit, the attributable amount of goodwill is included in the determination of the profit or loss on disposal.

The Group’s policy for goodwill arising on the acquisition of an associate is described under “Investments in associates and other investments”.

M. Assets Acquired in Satisfaction of Loans:The Lebanese banking entities of the Group account for collateral repossessed in accordance with the Central Bank of Lebanon main circular 78 and the Banking Control Commission circulars 173 and 267. Repossessed assets should be sold within two years from the date of approval of repossession by the Banking Control Commission. These are immediately transferred to “Assets acquired in satisfaction of loans” at their fair value at the repossession date, as approved by the Banking Control Commission. Upon sale of repossessed assets, any gain or loss realized is recognized in the consolidated statement of profit or loss under “Other operating income” or “Other operating expenses”. Gains resulting from the sale of repossessed assets are transferred to “Reserves for assets acquired in satisfaction of loans” starting in the following financial year.

For assets which were not disposed of within the specified period of two years, an amount computed as percentage of their gross carrying value is transferred to “Reserves for assets acquired in satisfaction of loans” in the following financial year.

N. Impairment of Tangible and Intangible Assets (Other than Goodwill):At each statement of financial position date, the carrying amounts of tangible and intangible assets are reviewed to determine whether there is any indication that these assets have suffered an impairment loss. If any such indication exists, the recoverable amount is estimated in order to determine the extent of impairment provision required, if any.

Recoverable amount is defined as the higher of:

- Fair value that reflects market conditions at the statement of financial position date, less cost to sell, if any. To determine fair value the Group adopts the market comparability approach using as indicators the current prices for similar assets in the same location and condition.

- Value in use: the present value of estimated future cash flows expected to arise from the continuing use of the asset and from its disposal at the end of its useful life, only applicable to assets with cash generation units.

If the recoverable amount of an asset is estimated to be less than its carrying amount, the carrying amount of the asset is reduced to its recoverable amount. An impairment loss is recognized immediately in profit or loss, unless the relevant asset is carried at a revalued amount, in which case the impairment loss is treated as a revaluation decrease.

Where an impairment loss subsequently reverses, the carrying amount of the asset(cash-generating unit) is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognized for the asset (cash-generating unit) in prior years. A reversal of an impairment loss is recognized immediately in profit or loss, unless the relevant asset is carried at a revalued amount, in which case the reversal of the impairment loss is treated as a revaluation increase.

In this connection, the recoverable amount of the Group’s owned properties and of properties acquired in satisfaction of debts, is the estimated market value, as determined by real estate appraisers on the basis of market compatibility by comparing with similar transactions in the same geographical area and on the basis of the expected value of a current sale between a willing buyer and a willing seller, that is, other than in a forced or liquidation sale after adjustment for illiquidity and market constraints.

The impairment loss is charged to income.


113112

O. Employees’ Benefits:

Obligations for contributions to defined employees’ benefits are recognized as an expense on a current basis.

Employees’ End-of-Service Indemnities: (Under the Lebanese Jurisdiction)

The provision for staff termination indemnities is based on the liability that would arise if the employment of all the staff were terminated at the statement of financial position date. This provision is calculated in accordance with the directives of the Lebanese Social Security Fund and Labor laws based on the number of years of service multiplied by the monthly average of the last 12 months remunerations and less contributions paid to the Lebanese Social Security National Fund.

Defined Benefit Plans: (Under other jurisdictions)

Obligations in respect of defined benefit pension plans is calculated separately for each plan by estimating the amount of future benefit that employees have earned in return for their service in the current and prior periods; that benefit is discounted to determine its present value, and any unrecognized past service costs and the fair value of any plan assets are deducted.

P. Provisions:Provisions are recognized when the Group has a present obligation as a result of a past event, and it is probable that the Group will be required to settle that obligation. Provision is measured at the best estimate of the consideration required to settle the obligation at the statement of financial position date.

Where a provision is measured using the cash flows estimated to settle the present obligation, its carrying amount is the present value of those cash flows determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and, where appropriate, the risks specific to the liability.

When some or all of the economic benefits required to settle a provision are expected to be recovered from a third party, the receivable is recognized as an asset if it is virtually certain that reimbursement will be received and the amount of the receivable can be measured reliably.

Q. Deferred Policy Acquisition Costs:Commissions and other costs directly related to the acquisition and renewal of insurance contracts are deferred and amortized over the terms of the insurance contracts to which they relate, similar to premiums earned. All other acquisition costs are recognized as an expense when incurred. Amortization is recorded under “insurance expense incurred” in the consolidated other operating income note.

Changes in the expected useful life or the expected pattern of consumption of future economic benefits embodied in the asset are accounted for by changing the amortization period and are treated as a change in accounting estimate.

An impairment review is performed at each reporting date or more frequently when an indication of impairment arises. If the assumptions relating to future profitability of these policies are not realized, the amortization of these costs could be accelerated and this may also require additional impairment write-offs in the statement of income. Deferred policy acquisition costs are also considered in the liability adequacy test for each reporting period and are reflected under consolidated other assets.

R. Premiums and Insurance Balances Receivable:Premiums and insurance balances receivable are recognized when due and measured on initial recognition at the fair value of the considerations received or receivable. The carrying value of premiums receivable is reviewed for impairment whenever events or circumstances indicate that the carrying amount may not be recoverable. Any impairment loss is recorded in the statement of comprehensive income. If in a subsequent period, the amount of impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognized, the previously recognized impairment loss is reversed. Any subsequent reversal is recognized in

the statement of comprehensive income. Premiums receivable are derecognized when the derecognition criteria for financial assets have been met.

Premiums and insurance balances receivable are reflected under consolidated other assets.

S. Claims and Expenses Recognition:Claims, comprising amounts payable to contract holders and third parties and related loss adjustment expenses, net of salvage and other recoveries, are charged to income as incurred and are reflected under “insurance expense incurred” in the consolidated other operating income note. Claims comprise the estimated amounts payable, in respect of claims reported to the Company and those not reported at the date of the statement of financial position.

The Company generally estimates its claims based on previous experience. Independent loss adjusters normally estimate property claims. In addition, a provision based on management’s judgment and the Company’s prior experience is maintained for the cost of settling claims incurred but not reported (IBNR) at the date of the statement of financial position reflected under other liabilities. Any difference between the provisions at the date of the statement of financial position and settlements and provisions for the following year is included in the underwriting account for that year.

Change in IBNR is reflected under “insurance expense incurred” in the consolidated other operating income note.

T. Reinsurance:The Company cedes insurance risk in the normal course of business for all of its businesses. Reinsurance assets represent balances due from reinsurance companies reflected under consolidated other assets. Recoverable amounts are estimated in a manner consistent with the outstanding claims provision and are in accordance with the reinsurance contract.

An impairment review is performed at each reporting date or more frequently when an indication of impairment arises during the reporting year. Impairment occurs when objective evidence exists that the Company may not recover outstanding amounts under the terms of the contract and when the impact on the amounts that the Company will receive from the reinsurer can be measured reliably. The impairment loss is recorded in the statement of comprehensive income.

Ceded reinsurance arrangements do not relieve the Company from its obligations to policyholders.

Premiums and claims on assumed reinsurance are recognized as income and expenses in the same manner as they would be if the reinsurance were considered direct business, taking into account the product classification of the reinsured business.

Reinsurance liabilities represent balances due to reinsurance companies and are reflected under consolidated other liabilities. Amounts payable are estimated in a manner consistent with the associated reinsurance contract.

Premiums and claims are presented on a gross basis for both ceded and assumed reinsurance.

Reinsurance assets or liabilities are derecognized when the contractual rights are extinguished or expire or when the contract is transferred to another party.

U. Reinsurance Claims:Reinsurance claims are recognized when the related gross insurance claim is recognized according to the terms of the relevant contract. These are reflected against claims under “insurance expense incurred” in the consolidated other operating income note.

V. Insurance Contract Liabilities:Non-life insurance contract liabilities are recognized when contracts are entered into and premiums are charged. These liabilities are known as the outstanding claims provision reflected under “insurance technical provisions” in the consolidated provisions note, which are based on the estimated ultimate cost of all claims incurred but not settled at the date of the statement of financial position, whether reported or not, together with related claims handling costs


115114

and reduction for the expected value of salvage and other recoveries. Delays can be experienced in the notification and settlement of certain types of claims, therefore the ultimate cost of these cannot be known with certainty at the date of the statement of financial position. The liability is calculated at the reporting date using a range of standard actuarial claim projection techniques, based on empirical data and current assumptions that may include a margin for adverse deviation. The liability is not discounted for the time value of money. No provision for recognized or catastrophe reserves is recognized. The liabilities are recognized when the contract expires, is discharged or is cancelled and are reflected under “insurance expense incurred” in the consolidated other operating income note.

The provision for unearned premiums represents that portion of premiums received or receivable that relates to risks that have not yet expired at the reporting date. The provision is recognized when contracts are entered into and premiums are charged, and is brought to account as premium income over the term of the contract in accordance with the pattern of insurance service provided under the contract.

W. Revenue and Expense Recognition:Interest income and expense are recognized on an accrual basis, taking account of the principal outstanding and the rate applicable, except for non-performing loans and advances for which interest income is only recognized upon realization. Interest income and expense include the amortization discount or premium.

Interest income and expense presented in the statement of profit or loss include:

- Interest on financial assets and liabilities at amortized cost.- Fair value changes in qualifying derivatives, including hedge ineffectiveness, and related hedged items when

interest rate risk is the hedged risk.

Net trading income presented in the statement of profit or loss includes:

- Interest income and expense on the trading portfolio.- Dividend income on the trading equities.- Realized and unrealized gains and losses on the trading portfolio.

Interest income on financial assets measured at fair value through profit or loss and interest income on the trading portfolio are presented separately in the statement of profit or loss. Other net income from financial assets measured at fair value through profit or loss, other than those held for trading, includes:

- Dividend income.- Realized and unrealized fair value changes.- Foreign exchange differences.

Dividend income is recognized when the right to receive payment is established. Dividends on equity instruments designated as at fair value through other comprehensive income in accordance with IFRS 9, are presented in other revenue, unless the dividend clearly represents a recovery of part of the investment, in which case it is presented in other comprehensive income.

Fees and commission income and expense that are integral to the effective interest rate on a financial asset or liability (i.e. commissions and fees earned on the loan book) are included under interest income and expense.

Other fees and commission income are recognized as the related services are performed.

Insurance revenueGross premiums Gross premiums are recognized at the time when the risk commences under a policy or contract of insurance incepted during the accounting period. Premium includes any adjustments arising in the accounting period for premiums receivable in respect of business written in prior accounting periods. Gross premiums from life and non-life insurance contracts are taken to income over the terms of the policies to which they relate using the recognized prorate temporis method. For gross earned single premium business, revenue is recognized on the date from which the policy is effective.

Gross changes in the unearned premiums are recorded against premiums. Unearned premiums reserve represents

the portion of the gross premiums relating to the unexpired period of coverage. Unearned premiums are calculated on a daily pro rata basis. The proportion attributable to subsequent periods is deferred as a provision for unearned premiums.

The provision for unearned premiums represents premiums received for risks that have not yet expired and is reflected under “insurance technical provisions” in the consolidated provisions note. Generally the reserve is recognized over the term of the contract and is recognized as premium income.

Net premiums earned are reflected under “insurance income earned” in the consolidated other operating income note.

If the unearned premiums reserve is not considered adequate to cover future claims arising on these premiums, a premium deficiency reserve is created and is reflected under “insurance technical provisions” in the consolidated provisions note. The change in premium deficiency reserve is reflected under “insurance expense incurred” in the consolidated other operating income note. Reinsurance premiums Gross reinsurance premiums are recognized as expense over the term of the policies to which they relate according to reinsurance agreements and are reflected under “insurance expense incurred” in the consolidated other operating income note. Premiums include any adjustment arising in the accounting period in respect of reinsurance contracts incepting in prior accounting periods. Gross change in unearned reinsurance premiums are recorded against reinsurance premiums. Unearned reinsurance premiums reserve represents the portion of the gross reinsurance premiums relating to the unexpired period of the coverage and is reflected under “insurance technical provisions” in the consolidated provisions note.

Fee and commission income from providing insurance services

Insurance and investment contract policyholders are charged for policy administration services, investment management services, surrenders and other contracts fees. These fees are recognized as revenues over the period in which the related services are performed. If the fees are for services provided in future periods, then they are deferred and recognized over those future periods.

X. Income Tax:Income tax expense represents the sum of the tax currently payable and deferred tax. Income tax is recognized in the statement of profit or loss except to the extent that it relates to items recognized in other comprehensive income (OCI), in which case it is recognized in OCI.

Current tax is the expected tax payable on the taxable income for the year, using rates enacted at the statement of financial position date. Income tax payable is reflected in the consolidated statement of financial position net of taxes previously settled in the form of withholding tax.

Deferred tax is recognized on differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax base used in the computation of taxable profit, and are accounted for using the balance sheet liability method. Deferred tax liabilities are generally recognized for all taxable temporary differences and deferred tax assets are recognized to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilized.

Deferred tax is provided using the liability method on temporary differences between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes at the reporting date.

Deferred tax liabilities are recognized for all taxable temporary differences, except:

- When the deferred tax liability arises from the initial recognition of goodwill or an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss.

- In respect of taxable temporary differences associated with investments in subsidiaries, associates and interests in joint ventures, when the timing of the reversal of the temporary differences can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future.


117116

Deferred tax assets are recognized for all deductible temporary differences, the carry forward of unused tax credits and any unused tax losses. Deferred tax assets are recognized to the extent that it is probable that taxable profit will be available against which the deductible temporary differences, and the carry forward of unused tax credits and unused tax losses can be utilized, except:

- When the deferred tax asset relating to the deductible temporary difference arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss.

- In respect of deductible temporary differences associated with investments in subsidiaries, associates and interests in joint ventures, deferred tax assets are recognized only to the extent that it is possible that the temporary differences will reverse in the foreseeable future and taxable profit will be available against which the temporary differences can be utilized.

The carrying amount of deferred tax assets is reviewed at each reporting date and reduced to the extent that is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred tax asset to be utilized. Unrecognized deferred tax assets are re-assessed at each reporting date and are recognized to the extent that it has become probable that future taxable profits will allow the deferred tax asset to be recovered.

Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the year when the asset is realized or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantially enacted at the reporting date.

Deferred tax relating to items recognized outside profit or loss is recognized outside profit or loss. Deferred tax items are recognized in correlation to the underlying transaction either in OCI or directly in equity.

Deferred tax assets and deferred tax liabilities are offset if a legally enforceable right exists to set off current tax assets against current income tax liabilities and the deferred taxes relate to the same taxable entity and the same taxation authority.

Tax benefits acquired as part of a business combination, but not satisfying the criteria for separate recognition at that date, are recognized subsequently if new information about facts and circumstances change. The adjustment is either treated as a reduction in goodwill (as long as it does not exceed goodwill) if it was incurred during the measurement period or recognized in profit or loss.

Y. Fiduciary Deposits:All fiduciary deposits are held on a non-discretionary basis and related risks and rewards belong to the account holders. Accordingly, they are reflected as off-balance sheet accounts.

Z. Operating Lease Agreements:Lease agreements which do not transfer substantially all the risks and benefits incidental to ownership of the leased items are classified as operating leases. Operating lease payments are recorded in the consolidated statement of profit or loss on a straight line basis over the lease term.

AA. Cash and Cash Equivalents:Cash and cash equivalents comprise balances with maturities of a period of three months including: cash and balances with the Central Banks, deposits with Banks and financial institutions, and deposits due to banks and financial institutions.

AB. Dividends on Ordinary SharesDividends on ordinary shares are recognized as a liability and deducted from equity when they are approved by the Bank’s shareholders. Interim dividends are deducted from equity when they are declared and no longer at the discretion of the Group.

Dividends for the year that are approved after the reporting date are disclosed as an event after the reporting date.

4. CRITICAL ACCOUNTING JUDGMENTS AND KEY SOURCES OF ESTIMATION UNCERTAINTY

In the application of the Group’s accounting policies, which are described in note 3, the directors are required to make judgments, estimates and assumptions about the reported amounts of revenues, expenses, assets and liabilities and the accompanying disclosures, and the disclosure of contingent liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates.

The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimate is revised if the revision affects only that period or in the period of the revision and future periods if the revision affects both current and future periods.

A. Critical accounting judgments in applying the Group’s accounting policies:In the process of applying the Group’s accounting policies, management has made the following judgments, apart from those involving estimations, which have the most significant effect in the amounts recognized in the financial statements.

Going Concern:The Group’s management has made an assessment of the Group’s ability to continue as a going concern and is satisfied that the Group has the resources to continue in business for the foreseeable future. Furthermore, management is not aware of any material uncertainties that may cast significant doubt upon the Group’s ability to continue as a going concern. Therefore the consolidated financial statements continue to be prepared on the going concern basis.

Classification of Financial Assets:Business Model:

The business model test requires the Group to assess whether its business objective for financial assets is to collect the contractual cash flows of the assets rather than realize their fair value change from sale before their contractual maturity. The Group considers at which level of its business activities such assessment should be made. Generally, a business model can be evidenced by the way business is managed and the information provided to management. However the Group’s business model can be to hold financial assets to collect contractual cash flows even when there are some sales of financial assets. While IFRS 9 provides some situations where such sales may or may not be consistent with the objective of holding assets to collect contractual cash flows, the assessment requires the use of judgment based on facts and circumstances.

In determining whether its business model for managing financial assets is to hold assets in order to collect contractual cash flows the Group considers:

• The frequency and volume of sales;• The reasons for any sales;• How management evaluates the performance of the portfolio;• The objectives for the portfolio.

AC. Earnings per Share:The Group presents basic and diluted earnings per share (EPS) data for its ordinary shares. Basic EPS is calculated by dividing the profit or loss attributable to ordinary shareholders of the Bank by the weighted average number of ordinary shares outstanding during the period. Diluted EPS is determined by adjusting the profit or loss attributable to ordinary shareholders and the weighted average number of ordinary shares outstanding for the effects of all dilutive potential ordinary shares.


119118

Characteristics of the Financial Asset:

Once the Group determines that its business model is to hold the assets to collect the contractual cash flows, it exercises judgment to assess the contractual cash flows characteristics of a financial asset. In making this judgment, the Group considers the contractual terms of the acquired asset to determine that they give rise on specific dates, to cash flows that solely represent principal and principal settlement and accordingly may qualify for amortized cost accounting.

Features considered by the Group that would be consistent with amortized cost measurement include:• Fixed and / or floating interest rate;• Caps, floors, collars;• Prepayment options.

Features considered by the Group that would be inconsistent with amortized cost measurement include:

• Leverage (i.e. options, forwards and swaps);• Conversion options; • Inverse floaters;• Variable rate coupons that reset periodically;• Triggers that result in a significant reduction of principal, interest or both.

Qualifying Hedge Relationships:

In designating financial instruments as qualifying hedge relationships, the Group has determined that it expects the hedge to be highly effective over the life of the hedging instrument.

In accounting for derivatives as cash flow hedges, the Group has determined that the hedged cash flow exposure relates to highly probable future cash flows.

B. Key Sources of Estimation Uncertainty:The following are the key assumptions concerning the future, and other key sources of estimation uncertainty at the statement of financial position date, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year.

The Group based their assumptions and estimates on parameters available when the consolidated financial statements were prepared. Existing circumstances and assumptions about future developments, however, may change due to market changes or circumstances arising beyond the control of the Group. Such changes are reflected in the assumptions when they occur.

Allowances for Credit Losses:

Specific impairment for credit losses is determined by assessing each case individually. This method applies to classified loans and advances and the factors taken into consideration when estimating the allowance for credit losses include the counterparty’s credit limit, the counterparty’s ability to generate cash flows sufficient to settle his advances and the value of collateral and potential repossession.

Loans and advances that have been assessed individually and found not to be impaired and all individually insignificant loans and advances are then assessed collectively, in groups of assets with similar risk characteristics, to determine whether provision should be made due to incurred loss events for which there is objective evidence but whose effects are not yet evident.

The collective assessment takes account of data from the loan portfolio (such as credit quality, levels of arrears, credit utilization, loan to collateral ratios, etc…), concentrations of risks, economic data and the performance of different individual groups.

Impairment of Goodwill:

Determining whether goodwill is impaired requires an estimation of the value in use of the cash-generating units to which goodwill has been allocated. The value in use calculation requires the directors to estimate the future cash flows expected to arise from the cash-generating unit and a suitable discount rate in order to calculate present value.

Determining Fair Values:

The determination of fair value for financial assets for which there is no observable market price requires the use of valuation techniques as described in Note 3D. For financial instruments that traded infrequently and have little price transparency, fair value is less objective, and requires varying degrees of judgment depending on liquidity, concentration, uncertainty of market factors, pricing assumptions and other risks affecting the specific instrument.

Unobservable inputs are used to measure fair value to the extent that observable inputs are not available, thereby allowing for situations in which there is little, if any, market activity for the asset or liability at the measurement date. However, the fair value measurement objective should remain the same; that is, an exit price from the perspective of market participants. Unobservable inputs are developed based on the best information available in the circumstances, which may include the reporting entity’s own data.

Non-life insurance (which comprises general insurance and healthcare) contract liabilities:

For non-life insurance contracts, estimates have to be made for both the expected ultimate cost of claims reported at the date of the statement of financial position and for the expected ultimate cost of claims incurred but not yet reported (IBNR) at the date of the statement of financial position. It can take a significant period of time before the ultimate claims cost can be estimated with certainty.

The main assumption underlying these techniques is that an entity’s past claims development experience can be used to project future claims development and hence ultimate claims costs. As such, these methods extrapolate the development of paid and incurred losses, average costs per claim and claim numbers based on the observed development of earlier years and expected loss ratios. Historical claims development is mainly analysed by accident years, but can also be further analysed by significant business lines as well as by claim types. Large claims are usually separately addressed, either by being reserved at the face value of loss adjuster estimates or separately projected in order to reflect their future development. In most cases, no explicit assumptions are made regarding future rates of claims inflation or loss ratios. Instead, the assumptions used are those implicit in the historical claims development data on which the projections are based. Additional qualitative judgment is used to assess the extent to which past trends may not apply in future (for example to reflect one-off occurrences, changes in external or market factors such as public attitudes to claiming, economic conditions, levels of claims inflations, judicial decisions and legislation, as well as internal factors such as a portfolio mix, policy features and claims handling procedures) in order to arrive at the estimated ultimate cost of claims that present the likely outcome from the range of possible outcomes, taking account of all the uncertainties involved.

5. SEGMENT INFORMATIONThe Group’s operating segments are organized as follows: Lebanon, Middle East & Europe.

Measurement of segment assets, liabilities, income and expenses is based on the Group’s accounting policies.

Segment income and expenses include transfers between segments and these transfers are conducted on arm’s length terms and conditions. Shared costs are included in segments on the basis of the actual recharges made, if any.

The Group has three reportable business segments which reflect the basis on which senior management reviews operating activities, allocates capital, and assesses performance.


121120

December 31, 2014

LBP’000 LBP’000 LBP’000LBP’000

Profit for the year ended December 31, 2013 generated by the European subsidiaries includes gain generated by the Cyprus Branch in the amount of LBP54.5billion and nil in 2014 from the sale of Lebanese Government debt securities.

Lebanon Middle East Europe Inter-Segment Lebanon Middle East Europe Inter-Segment

LBP’000 LBP’000 LBP’000 LBP’000

December 31, 2013

Total Assets 20,961,012,851 677,461,605 4,043,875,493 (2,436,819,765) 19,100,518,616 336,873,341 3,408,956,951 (2,057,328,193)

Total Liabilities 18,304,830,271 573,247,123 3,418,188,322 (1,313,344,510) 16,675,637,830 254,655,426 2,828,442,452 (1,002,449,737)

Total Equity 2,656,182,580 104,214,482 625,687,171 (1,123,475,255) 2,424,880,786 82,217,915 580,514,499 (1,054,878,456)

Net Income 166,882,259 9,718,567 24,638,081 - 108,210,763 8,062,848 76,897,711 (6,309)

ASSETS

Financial assets at fair value through profit or loss 620,613,030 2,291,986 37,921,604 - 500,934,162 2,260,913 36,715,089 -

Loans and advances to customers 4,393,163,868 41,182,561 2,418,782,020 8,555,841 4,370,437,413 18,367,603 2,078,131,277 14,579,715

Loans and advances to related parties 286,729,660 - 5,712,964 - 277,984,740 - 6,454,432 -

Investment securities 6,551,123,542 40,084,967 849,104,126 - 4,726,745,771 21,401,296 456,102,389 -

LIABILITIES

Customers’ deposits at fair value through profit or loss 40,972,933 - - - 48,627,557 - - -

Customers’ deposits at amortized cost 14,387,056,331 137,396,921 2,684,650,955 (170,258) 13,272,823,170 34,483,044 2,219,563,787 (170,258)

Related parties’ deposits at amortized cost 1,018,506,707 - 86,854,854 (79,964,492) 1,104,004,416 - 35,110,804 (55,198,562)

STATEMENT OF PROFIT OR LOSS

Interest income 899,454,794 10,278,832 317,722,472 (22,100,074) 802,369,848 8,894,093 245,591,179 (28,721,118)

Interest expense (645,428,145) (3,166,641) (181,137,514) 22,100,074 (582,167,706) (3,150,981) (139,567,606) 28,721,118

Net interest income 254,026,649 7,112,191 136,584,958 - 220,202,142 5,743,112 106,023,573 -

Fee and commission income 78,639,107 6,735,563 27,396,668 - 66,697,274 3,205,144 27,067,409 -

Fee and commission expense (15,886,926) (1,711,159) (1,839,078) - (12,575,805) (322,345) (1,877,094) -

Net fee and commission income 62,752,181 5,024,404 25,557,590 - 54,121,469 2,882,799 25,190,315 -

Net results on financial instruments atfair value through profit or loss 44,209,661 - (10,418,688) - 22,180,404 - 5,158,694 -

Gain from derecognition of financial assets measuredat amortized cost 90,885,516 - 7,583 - 123,027,197 232,723 60,914,298 -

Other operating income (net) 68,323,492 8,301,250 18,131,568 (4,359,746) 84,563,398 8,088,660 3,689,257 (7,340,693)

Net operating revenues 520,197,499 20,437,845 169,863,011 (4,359,746) 504,094,610 16,947,294 200,976,137 (7,340,693)

Provision for credit losses (net of write back) (20,290,270) (609,895) (16,894,578) - (53,131,027) (367,797) (1,873,163) -

Loss from write-off of loans (270,029) - (5,642,763) - (398,997) - - -

Net operating revenues after credit losses 499,637,200 19,827,950 147,325,670 (4,359,746) 450,564,586 16,579,497 199,102,974 (7,340,693)

Staff costs (177,498,280) (3,846,036) (57,778,860) 1,207,397 (168,411,144) (3,087,918) (55,327,201) 1,201,865

Administrative expenses (130,061,376) (3,120,183) (39,403,132) 3,152,349 (123,251,016) (2,729,315) (46,560,332) 6,132,519

Depreciation and amortization (17,315,084) (1,120,348) (7,830,402) - (15,649,111) (1,005,847) (6,564,544) -

(Impairment)/write-back of impairment of assets acquired in satisfaction of loan 29,872 - (508,090) - 64,400 - (372,678) -

Provision for Contingencies (net of write-back) (8,922,350) - (10,580,688) - (19,402,196) - (7,487,662) -

Write-back of provision for impairment of anInvestment in a fund (net) 22,612,500 - - - - - - -

Profit before taxes 188,482,482 11,741,383 31,224,498 - 123,915,519 9,756,417 82,790,557 (6,309)

Income tax expense (21,600,223) (2,022,816) (6,586,417) - (15,704,756) (1,693,569) (5,892,846) -

Profit for the year 166,882,259 9,718,567 24,638,081 - 108,210,763 8,062,848 76,897,711 (6,309)


123122

6. CASH AND DEPOSITS WITH CENTRAL BANKS

Cash on hand 162,289,925 125,096,661

Compulsory reserves with the Central Bank of Lebanon 303,330,956 256,129,219

Current accounts with the Central Bank of Lebanon 21,894,557 20,706,274

Current accounts with other central banks 132,068,479 122,047,668

Term placements with the Central Bank of Lebanon 3,307,584,344 3,339,044,907

Term placements and compulsory reserves with other central banks 285,451,636 329,876,291

Accrued interest receivable 34,052,179 42,023,881

4,246,672,076 4,234,924,901

2014 2013

LBP’000 LBP’000

December 31,

Compulsory reserves with the Central Bank of Lebanon represent non-interest earning deposits in Lebanese Pounds computed on the basis of 25% and 15% of the average weekly sight and term customers’ deposits in Lebanese Pounds, respectively, after taking into account certain waivers in relation to loans granted in Lebanese Pounds, in accordance with the local banking regulations.

Current accounts with other central banks include compulsory reserves with the Central Bank of Iraq amounting to the equivalent in Iraqi Dinar of LBP13.2billion as at December 31, 2014 (LBP4.8billion as at December 31, 2013) representing 15% of customers’ deposits.

Term placements with the Central Bank of Lebanon include the equivalent in foreign currencies ofLBP1,778billion as at December 31, 2014 (LBP1,677billion as at December 31, 2013) deposited in accordance with local banking regulations which require banks to maintain interest earning placements in foreign currency to the extent of 15% of customers’ deposits in foreign currencies, certificates of deposits and loans obtained from non-resident financial institutions.

Term placements with other central banks include the equivalent in:

- Turkish Lira and other foreign currencies of LBP285.2billion as at December 31, 2014 (LBP307.9billion as at December 31, 2013) deposited in accordance with banking laws and regulations in Turkey which require banks to maintain at the Central Bank of Turkey mandatory interest earning deposits to the extent of 6% to 11% of their liabilities in Turkish Lira and 5% to 11% of their liabilities in foreign currencies, depending on the nature of their liabilities.

- Euro of LBP191.4million as at December 31, 2014 (LBP52.8million as at December 31, 2013) deposited in accordance with banking laws and regulations in Cyprus which require banks to maintain at the Central Bank of Cyprus mandatory interest earning deposits in Euro to the extent of 1% (1% as at December 31, 2013) of banks’ and customers’ deposits maturing in less than two years, after deducting a fixed amount of Euro100,000.

Compulsory deposits with the central banks are not available for use in the Group’s day-to-day operations.

7. DEPOSITS WITH BANKS AND FINANCIAL INSTITUTIONS

Checks in the course of collection 62,712,098 55,383,749

Current accounts 179,544,573 282,462,546

Current accounts - related parties 476,669 782,310

Call placements 7,224,015 18,014,625

Overnight placements 360,964,590 444,712,500

Overnight placements - related parties 75,375,000 13,521,000

Term placements 762,173,644 1,467,083,331

Term placements - related parties 31,714,464 242,991,150

Pledged deposits – Note 46 31,356,000 38,378,516

Blocked deposits 2,822,730 -


1,517,252,238 2,565,970,261

2014 2013

LBP’000 LBP’000

December 31,

Term placements and current accounts with banks and financial institutions include term placements in the amount of LBP61.96billion and current accounts in the amount of LBP193.6million, as at December 31, 2014 (term placements in the amount of LBP84.4billion and current accounts in the amount of LBP159million, as at December 31, 2013) with right of set-off against acceptances payable amounting to LBP20.6billion, letters of guarantee amounting to LBP21.3billion, and letters of credit amounting to LBP9.63billion (LBP5.19billion, LBP48.57billion and LBP23.04billion, respectively as at December 31, 2013).


125124

Lebanese government bonds 71,697,422 160,390,502 232,087,924

Certificates of deposit issued by

the Central Bank of Lebanon 57,855,634 - 57,855,634

Debt securities issued by banks - 59,654,982 59,654,982

Debt securities issued by companies - 70,364,760 70,364,760

Credit linked notes issued by banks - 92,672,017 92,672,017

Other foreign government bonds - 81,915 81,915

Quoted equity securities - 754,620 754,620

Unquoted equity securities - 16,999,142 16,999,142

Accrued interest receivable 2,097,389 7,341,781 9,439,170

131,650,445 408,259,719 539,910,164

The positive change in the fair value of financial assets at fair value through profit or loss in the amount of LBP2.5billion (LBP33.8million in 2013) is recorded under “net results on financial instruments at fair value through profit or loss” (Note 36) in the consolidated statement of profit or loss.

8. FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS

Lebanese Government bonds 103,849,782 218,266,394 322,116,176

Certificates of deposit issued by the Central

Bank of Lebanon 137,108,251 - 137,108,251

Debt securities issued by banks - 15,576,846 15,576,846

Debt securities issued by companies - 73,511,258 73,511,258

Credit linked notes issued by banks - 77,107,116 77,107,116

Other foreign government bonds - 17,582 17,582

Quoted equity securities - 778,298 778,298

Unquoted equity securities - 23,137,966 23,137,966

Accrued interest receivable 5,398,145 6,074,982 11,473,127

246,356,178 414,470,442 660,826,620

LBP C/V of F/Cy Total

LBP C/V of F/Cy Total

LBP’000LBP’000

LBP’000LBP’000

LBP’000

LBP’000

December 31, 2014

December 31, 2013

Loans to banks as at December 31, 2014 include LBP69.2billion (LBP70.4billion as at December 31, 2013) representing unsecured loans in foreign currencies purchased from foreign banks, net of related unearned income in the amount of LBP207.9million (LBP450million as at December 31, 2013).

Loans to banks also include discounted acceptances in foreign currencies with an aggregate nominal value of LBP4.5billion as at December 31, 2014 (LBP13.3billion as at December 31, 2013).

Loans to banks include loans granted in LBP to a resident housing bank with aggregate remaining outstanding balance of LBP6.1billion as at December 31, 2014 (LBP7.9billion as at December 31, 2013). As a guarantee of these LBP loans, the borrower has pledged in favor of the Group bills related to the housing loans granted to its customers. These loans are for a period of 12 years with a grace period on payments of 2 years. Interest on the loans is reset every three years.

Loans under reverse repurchase agreements represent short term loans granted to a financial institution in Lebanon. These loans are secured by USD certificates of deposit issued by the Central Bank of Lebanon in the amount of LBP900billion. These loans mature during the first quarter of 2015.

Loans to banks 92,610,534 197,824,836

Loans under reverse repurchase agreements 760,214,508 -

Accrued interest receivable 1,156,047 667,286

853,981,089 198,492,122

2014 2013

LBP’000 LBP’000

December 31,

9. REVERSE REPURCHASE AGREEMENTS AND LOANS TO BANKS


127126

Loans and advances to customers are reflected at amortized cost and consist of the following:

10. LOANS AND ADVANCES TO CUSTOMERS

December 31, 2014

LBP’000 LBP’000 LBP’000 LBP’000

GrossAmount

UnrealizedInterest

ImpairementAllowance

CarryingAmount

LBP’000 LBP’000 LBP’000 LBP’000

December 31, 2013

Performing Retail Customers:

Mortgage loans 661,516,084 - - 661,516,084 557,305,810 - - 557,305,810

Personal loans 314,920,090 - - 314,920,090 273,623,954 - - 273,623,954

Credit cards 41,202,207 - - 41,202,207 31,474,552 - - 31,474,552

Overdrafts 61,500,658 - - 61,500,658 39,408,590 - - 39,408,590

Other 217,928,369 - - 217,928,369 179,588,110 - - 179,588,110

Non-Performing Retail Customers:

Substandard loans 5,806,460 (700,814) - 5,105,646 12,248,444 (2,634,205) (1,412) 9,612,827

Rescheduled bad and doubtful 53,398 - (24,745) 28,653 64,261 - (3,531) 60,730

Bad and doubtful loans 14,262,529 (5,374,358) (9,100,915) (212,744) 8,542,705 (2,894,795) (5,891,051) (243,141)

Performing Corporate Customers:

Rescheduled loans 30,819,465 - - 30,819,465 19,279,651 - - 19,279,651

Corporate loans 3,995,582,346 - - 3,995,582,346 3,948,141,151 - - 3,948,141,151

Small and medium enterprises’ loans 1,587,224,863 - - 1,587,224,863 1,513,271,643 - - 1,513,271,643

Non-Performing Corporate Customers:

Rescheduled substandard loans 1,562,687 (952,372) - 610,315 2,348,355 (1,514,889) - 833,466

Substandard loans 13,448,762 (1,201,718) - 12,247,044 32,840,486 (2,478,434) (741,468) 29,620,584

Rescheduled bad and doubtful loans 50,051,758 (27,645,576) (11,482,020) 10,924,162 68,096,660 (37,069,891) (19,955,178) 11,071,591

Bad and doubtful loans 198,271,490 (35,168,297) (82,342,100) 80,761,093 105,885,949 (29,531,040) (45,744,928) 30,609,981

Allowance for collectively assessed:

Corporate loans - - (180,686,955) (180,686,955) - - (191,403,668) (191,403,668)

Retail loans - - (15,562,818) (15,562,818) - - (18,549,826) (18,549,826)

Deferred penalties charged on excess over limit (14,848,001) - - (14,848,001) (14,404,824) - - (14,404,824)

Accrued interest receivable 52,623,813 - - 52,623,813 62,214,827 - - 62,214,827

7,231,926,978 (71,043,135) (299,199,553) 6,861,684,290 6,839,930,324 (76,123,254) (282,291,062) 6,481,516,008

GrossAmount

UnrealizedInterest

ImpairementAllowance

CarryingAmount


129128

Balance on January 1 6,627,528 7,669,408

Additions 5,473,384 4,828,480

Write-back to profit or loss – Note 32 (1,317,554) (3,212,978)

Write-off (902,213) (2,780,824)

Transfer to unrealized interest on bad and doubtful loans (7,026,241) -

Effect of exchange rate changes - 123,442

Balance on December 31 2,854,904 6,627,528

Contractual write-off on rescheduled debts (836,929) (1,131,838)

Net balance, end of year 2,017,975 5,495,690

Balance on January 1 742,880 -

Additions 5,907,494 8,741,288

Write-back to profit or loss (1,166,470) (1,902,245)

Transfer to allowance for bad and doubtful loans (5,163,286) (5,347,044)

Effect of exchange rate changes (320,618) (749,119)

Balance end of year - 742,880


Additions 11,779,495 12,865,439

Write-off (4,621,393) (16,584,249)

Write-back to profit or loss – Note 32 (6,408,240) (7,424,421)

Transfer from unrealized interest on substandard loans 7,026,241 -

Transfer to off-balance sheet (net) (9,190,785) (5,875,980)

Effect of exchange rate changes 107,187 544


Contractual write-off on rescheduled debts (12,155,277) (19,732,166)


2014 2013

2014 2013

2014 2013

LBP’000

LBP’000

LBP’000

LBP’000

LBP’000

LBP’000

The movement of unrealized interest on substandard loans during 2014 and 2013 is summarized as follows:

The movement of allowance for impairment on substandard loans during 2014 and 2013 is summarized as follows:

The movement of unrealized interest on bad and doubtful loans during 2014 and 2013 is summarized as follows:


Additions 50,329,839 6,848,159

Write-off (9,616,006) (11,187,533)

Write-back to profit or loss (9,898,387) (14,514,965)

Transfer from allowance for substandard loans 5,163,286 5,347,044

Transfer to off-balance sheet (net) (7,949,422) (2,367,190)

Transfer from allowance for collective impairment 4,472,419 -

Appropriation from retained earnings - 296,232

Effect of exchange rate changes (1,027,843) (2,331,922)


Contractual write-off on rescheduled debts (including regular rescheduled loans) (3,333,437) (10,383,795)


Escrow funds 1,724,029 1,842,823

Balance end of year (net) 99,616,343 61,210,893

2014 2013

LBP’000 LBP’000

The movement of allowance for impairment on bad and doubtful loans during 2014 and 2013 is summarized as follows:


Write-back to profit or loss (29,851) (67,973)

Write-off (88,943) (348,680)

Transfer to off-balance sheet (net) - (392,676)


2014 2013

LBP’000 LBP’000

The movement of the escrow funds during 2014 and 2013 is summarized as follows:

As of December 31, 2014, the Group has unutilized financing commitments (excluding credit cards) amounting to LBP169billion (LBP299billion as of December 31, 2013).


Additions net of write-back (7,347,882) 56,267,723

Transfer to allowance for impairment on doubtful and bad loans (4,472,419) -



2014 2013

LBP’000 LBP’000

The movement of the allowance for collectively assessed loans during 2014 and 2013 is summarized as follows:


131130

11. LOANS AND ADVANCES TO RELATED PARTIES

12. INVESTMENT SECURITIES

Retail loans and advances 14,961,047 6,341,137

Corporate loans and advances 273,795,335 274,121,545


292,442,624 284,439,172

2014 2013

LBP’000 LBP’000

December 31,

Loans and advances to related parties are partially secured (Note 42).

December 31, 2014 December 31, 2013

LBP’000 LBP’000 LBP’000

Financial assets at fair value through

other comprehensive income (A) 47,402,492 353,700,302 401,102,794 12,405,726 345,158,502 357,564,228

47,402,492 353,700,302 401,102,794 12,405,726 345,158,502 357,564,228

Financial assets at amortized

cost (B) 2,755,491,670 4,174,960,101 6,930,451,771 2,277,155,553 2,500,232,324 4,777,387,877

Accrued interest receivable on

financial assets at amortized cost 47,284,055 61,474,015 108,758,070 32,347,051 36,950,300 69,297,351

2,802,775,725 4,236,434,116 7,039,209,841 2,309,502,604 2,537,182,624 4,846,685,228

2,850,178,217 4,590,134,418 7,440,312,635 2,321,908,330 2,882,341,126 5,204,249,456

LBP LBPC/V of F/Cy C/V of F/CyTotal Total

LBP’000 LBP’000 LBP’000

A. Financial assets at fair value through other comprehensive income:

December 31, 2014

December 31, 2013

LBP Base Accounts F/Cy Base Accounts


LBP’000

LBP’000

LBP’000

LBP’000

LBP’000

LBP’000

Quoted equity securities - - - 293,481,842 287,936,095 (5,545,747)

Unquoted equity securities 30,317,851 47,402,492 17,084,641 18,793,966 19,476,420 682,454

Cumulative preferred sharesissued by a Lebanese bank - - - 7,537,500 7,537,500 -

Convertible preferred sharesissued by a Lebanese bank - - - 753,750 791,437 37,687

Non-cumulative preferred sharesissued by Lebanese banks - - - 37,687,500 37,958,850 271,350

30,317,851 47,402,492 17,084,641 358,254,558 353,700,302 (4,554,256)

Deferred tax - Note 30 (2,562,696) 1,187,769

14,521,945 (3,366,487)

Quoted equity securities - - - 293,481,842 280,186,491 (13,295,351)

Unquoted equity securities 11,321,086 12,405,726 1,084,640 17,136,938 17,224,963 88,025

Cumulative preferred sharesissued by a Lebanese bank - - - 7,537,500 7,537,500 -

Convertible preferred sharesissued by a Lebanese bank - - - 753,750 783,900 30,150

Non-cumulative preferred sharesissued by Lebanese banks - - - 39,195,000 39,425,648 230,648

11,321,086 12,405,726 1,084,640 358,105,030 345,158,502 (12,946,528)

Deferred tax – Note 30 (162,710) 2,376,680

921,930 (10,569,848)

Cost

Cost

Cost

Cost

Fair Value

Fair Value

Fair Value

Fair Value

Cumulative Change inFair Value




LBP’000

LBP’000

LBP’000

LBP’000

LBP’000

LBP’000

Dividends received during 2014 on financial assets at fair value through other comprehensive income in the amount of LBP7.58billion (LBP3.76billion for the year 2013) are reflected under “Other operating income (net)” in the consolidated statement of profit or loss (Note 37).

During 2013, the Group sold to a related party quoted equity securities classified at fair value through other comprehensive income for an aggregate consideration of LBP175billion (USD116million), at the market price prevailing at the date of the transaction. This transaction resulted in a loss in the amount of LBP132billion (USD87.6million) recorded in other comprehensive income.


133132

B. Financial assets at amortized cost:

December 31, 2014

December 31, 2013



LBP’000

LBP’000

LBP’000

LBP’000

LBP’000

LBP’000

Lebanese Government bonds 1,411,079,166 1,454,435,767 18,554,813 534,262,092 544,168,575 7,695,242

Certificates of deposit issued bythe Central Bank of Lebanon 1,344,412,504 1,367,199,242 28,729,242 2,767,192,950 2,796,590,529 51,438,820

Certificates of depositissued by banks - - - 45,225,091 45,225,091 141,757

Debt securities issued by banks - - - 139,817,050 139,724,069 536,632

Debt securities issued by companies - - - 43,276,481 43,133,200 799,852

Other foreign government bonds - - - 629,830,941 629,476,356 372,421

Credit linked notes issued by banks - - - 15,355,496 15,075,030 489,291

2,755,491,670 2,821,635,009 47,284,055 4,174,960,101 4,213,392,850 61,474,015

Lebanese Government bonds 1,973,530,038 1,988,962,409 25,546,264 539,650,628 544,827,195 8,171,350

Certificates of deposit issued by theCentral Bank of Lebanon 303,625,515 307,572,334 6,800,787 1,462,656,083 1,495,292,293 28,065,630

Debt securities issued by banks - - - 30,150,000 30,150,000 67,000

Debt securities issued by companies - - - 11,729,011 12,375,331 646,320

Other foreign government bonds - - - 456,046,602 425,776,347 -

2,277,155,553 2,296,534,743 32,347,051 2,500,232,324 2,508,421,166 36,950,300

Amortized Cost

Amortized Cost

Amortized Cost

Amortized Cost

Fair Value

Fair Value

Fair Value

Fair Value

AccruedInterest

Receivable

AccruedInterest

Receivable

AccruedInterest

Receivable

AccruedInterest

Receivable

LBP’000

LBP’000

LBP’000

LBP’000

LBP’000

LBP’000

The fair value of Lebanese Government bonds and of certificates of deposit was calculated using a valuation model which takes into account observable market data using a discounted cash flow model based on current interest yield curve appropriate for the remaining term to maturity and credit spreads.

Gain from financial assets at amortized cost resulted from the following:

(a) Gain from derecognition of financial assets at amortized cost resulted from the following:

During 2014, the Group entered into several sale transactions of Lebanese Government bonds denominated in LBP and in US Dollars in the aggregate nominal value of LBP70.7billion and USD37.1million, respectively. Furthermore, the Group entered into 3 exchange transactions of Lebanese Government bonds in the aggregate nominal value of LBP717.7billion against certificates of deposit issued by the Central Bank of Lebanon in the aggregate nominal value of LBP798.5billion and into 3 exchange transactions of Lebanese Government bonds in the aggregate nominal value of LBP73billion against Lebanese Government bonds in the aggregate nominal value of LBP58billion. In addition, the Group entered into an exchange transaction of Lebanese Government bonds denominated in US Dollars in the aggregate nominal value of USD125.4million against Lebanese Government bonds with shorter maturities denominated in US Dollars in the aggregate nominal value of USD160million.

During 2013, the Group entered into 4 sale transactions of certificates of deposit issued by the Central Bank of Lebanon and Lebanese Government bonds in the aggregate of LBP150billion and LBP753.75billion, respectively. Furthermore, the Group entered into 2 exchange transactions whereby, the Group exchanged certificates of deposit issued by the Central Bank of Lebanon in the aggregate of LBP1,061billion against Lebanese treasury bonds with longer maturities. In addition, the Group exchanged certificates of deposit issued by the Central Bank of Lebanon in USD maturing in January 2014 in the aggregate of USD313.6million against certificates of deposit issued by the Central Bank of Lebanon with longer maturities.

The Group entered into the above transactions for the purpose of liquidity gap and yield management and exchange of certificates of deposit and Lebanese government bonds with the Central Bank of Lebanon.

(b) During 2014, the Group purchased from the Central Bank of Lebanon certificates of deposit denominated in US Dollars having a fair value of USD500million at the transaction date while the purchase price was USD458.81million. This transaction resulted in a “Day 1 gain” amounting to USD41.19million (C/V LBP62billion) (Note 23).

Gain from derecognition of financial assets (a) 28,805,840 184,174,218

Gain upon acquisition of financial assets (Day 1 gain) (b) 62,087,259 -

90,893,099 184,174,218

Lebanese Government bonds 28,798,257 100,339,107

Turkish Government bonds 7,583 5,872,458

Certificates of deposits issued by Central Banks - 77,729,930

Corporate debt securities - 232,723

28,805,840 184,174,218

2014 2013

2014 2013

LBP’000

LBP’000 LBP’000

LBP’000


135134

13. CUSTOMERS’ ACCEPTANCE LIABILITYAcceptances represent documentary credits which the Group has committed to settle on behalf of its customers against commitments by those customers (acceptances). The commitments resulting from these acceptances are stated as a liability in the statement of financial position for the same amount.

14. INVESTMENTS IN ASSOCIATES AND OTHER INVESTMENTS

% %

Investments in Associates

CSC Bank S.A.L. Lebanon - 40.00 - 47,980,271

GroupMed Services S.A.L. Lebanon 25.00 25.00 2,712,410 2,718,031

Pin Pay S.A.L. Lebanon 37.11 35.43 3,701,117 3,193,875

Ciment de Sibline S.A.L. Lebanon 19.36 19.36 41,065,344 36,511,836

47,478,871 90,404,013

Other Investments

Light Metal Products S.A.L. Lebanon 60.83 60.83 7,173,170 7,173,170

Long-term loan to Light Metal Products S.A.L. 3,403,458 3,412,540

Al Fanadeq S.A.L. Lebanon 48.00 48.00 4,829,705 2,533,409

Beverly Hotel S.A.L. Lebanon 99.00 99.00 4,586,132 4,586,132

Sidem S.A.L. Lebanon 20.00 20.00 17,925,972 16,962,391

37,918,437 34,667,642

85,397,308 125,071,655


CarryingValue

InterestHeld

InterestHeld

LBP’000 LBP’000

December 31, December 31,

2013 20132014 2014

CarryingValue

During the first half of 2014, the Group sold its investment in CSC Bank S.A.L., an associate, for a total consideration of LBP52.76billion (USD35million). This transaction resulted in a capital gain of around LBP4.7billion recorded under “Gain on sale of an associate” under “Other operating income (net)” in the consolidated statement of profit or loss (Note 37).

The investment in CSC Bank S.A.L. was reflected as at December 31, 2013 using the equity method whereby the Group accounted for its share in the net income of the associate net of deferred dividend tax as well as its share of the change in fair value of the associate’s portfolio of securities held through other comprehensive income, if any. In this connection, the Group recorded its share in the net income of the associate in the amount of LBP4.1billion for the year 2013, net of deferred tax in the amount of LBP455million under “Other operating income (net)” in the consolidated statement of profit or loss (Note 37).

During 2014, PinPay S.A.L. increased its capital by an amount of LBP2.6billion in which the Group participated in the amount of LBP1.1billion and its share of the capital increase was fully paid thereby increasing its ownership to 37.11%. The Group accounts for its share in the net result of the associate using the equity method. In this connection, the Group recorded its share in the net loss of the associate for an amount of LBP583million (LBP483million in 2013) under “Other operating income (net)” in the consolidated statement of profit or loss (Note 37).

The investment in Ciment de Sibline S.A.L. is reflected using the equity method whereby the Group accounts for its shares in the associate’s equity. In this connection, the Group recorded its share in the associate’s change in equity in the amount of LBP4.6billion (LBP9.4billion in 2013) under “Other operating income” (Note 37) in the consolidated statement of profit or loss. Furthermore, the Group recorded in 2013 LBP1.5billion representing its share in prior periods results under “Other operating income (net)” (Note 37) in the consolidated statement of profit or loss.

%

Ciment de Sibline S.A.L Lebanon 272,028,796 59,916,988 212,111,808 19.36% 41,064,846

Pin Pay S.A.L Lebanon 2,325,345 350,281 1,975,064 37.11% 733,044

GroupMed services S.A.L Lebanon 18,410,081 17,492,421 917,660 25.00% 229,415

292,764,222 77,759,690 215,004,532 42,027,305

Country ofIncorporationName

NetAssets

TotalAssets

TotalLiabilities

InterestsHeld

Group’sShare of

Net Assets

LBP’000LBP’000LBP’000 LBP’000

The following tables illustrate summarized financial information of the Group’s investments in associates:

December 31, 2014

%

CSC Bank S.A.L Lebanon 325,049,805 203,420,852 119,784,061 40.00% 47,913,624

Ciment de Sibline S.A.L Lebanon 243,307,485 54,710,190 188,597,295 19.36% 36,512,436

Pin Pay S.A.L Lebanon 2,289,647 1,264,657 1,024,990 35.43% 363,154

GroupMed services S.A.L Lebanon 18,598,510 17,658,804 939,706 25.00% 234,927

589,245,447 277,054,503 310,346,052 85,024,141

Country ofIncorporationName

NetAssets

TotalAssets

TotalLiabilities

InterestsHeld

Group’sShare of

Net Assets

LBP’000LBP’000LBP’000 LBP’000

December 31, 2013


137136

15. ASSETS ACQUIRED IN SATISFACTION OF LOANSAssets acquired in satisfaction of loans have been acquired through enforcement of security over loans and advances.

The movement of assets acquired in satisfaction of loans during 2014 and 2013 was as follows:

The acquisition of assets in settlement of loans in Lebanon is regulated by the banking regulatory authorities and these should be liquidated within 2 years. In case of default of liquidation, a regulatory reserve should be appropriated from the yearly net profits over a period of 5 years. This reserve is reduced to 5% annually when certain conditions linked to the restructuring of non performing loans’ portfolio are met. This regulatory reserve is reflected under equity. In this connection, an amount of LBP23.2billion was appropriated in 2014 from 2013 income (LBP17.8billion in 2013). An amount of LBP449million was transferred in 2014 to retained earnings upon the sale of the related foreclosed assets (LBP504million in 2013).

The fair value of assets acquired in satisfaction of loans is disclosed under Note 49.

Gross Amount:

Balance January 1 449,051,403 415,538,450

Additions due to settlement of loans and receivables 11,644,275 35,798,564

Additions fees and charges 659,011 904,407

Disposals (7,751,014) (2,577,854)

Effect of exchange rate (1,644,408) (612,164)

Balance December 31 451,959,267 449,051,403

Impairment Allowance:

Balance January 1 (10,806,830) (10,546,135)

Additions (508,090) (372,678)

Write-back 29,872 64,400

Write-off 54,049 15,536

Effect of exchange rate 58,515 32,047

Balance December 31 (11,172,484) (10,806,830)

Accumulated depreciation:

Balance January 1 (898,188) -

Additions (470,489) (452,912)

Transfers from property and equipment - (445,276)

Balance December 31 (1,368,677) (898,188)

Carrying Amount:

December 31 439,418,106 437,346,385

2014 2013

LBP’000 LBP’000

December 31,

16. GOODWILLThe goodwill balance outstanding as of the statement of financial position date consists of the following:

Goodwill acquired in a business combination is allocated, at acquisition, to the cash generating units (CGUs) that are expected to benefit from that business combination. The Group has determined that each subsidiary acquired constitutes a single cash generating unit.

The Group tests goodwill annually for impairment or more frequently if there are indications that goodwill might be impaired. Goodwill is considered to be impaired when the carrying value exceeds the recoverable amounts of the merged business which are determined based on a market comparability approach.

BankMed (Suisse) S.A., net of accumulated

amortization up to December 31, 2003 16,182,023 16,182,023

Cumulative effect of exchange rate changes

up to the statement of financial position date 23,397,246 27,725,786

39,579,269 43,907,809

Saudi Lebanese Bank S.A.L. 31,765,458 31,765,458

Turkland Bank A.S. 80,871,312 80,871,312

Demir Sigorta S.A. – Note 44 1,013,522 -

Med Finance Holding Ltd. 616,568 616,568

153,846,129 157,161,147

Allied Bank S.A.L. 23,068,898 23,068,898

Goodwill (net) 176,915,027 180,230,045

2014 2013

LBP’000 LBP’000

December 31,


139138

17. PROPERTY AND EQUIPMENT

Additions to “Furniture and Equipment” and “Advance payments on capital expenditure” represent mainly costs incurred in connection with the opening and refurbishment of branches in Lebanon.

The Group has as at December 31, 2014 capital expenditure commitments in the amount of LBP4.66billion (LBP6.45billion as at December 31, 2013).

LBP’000 LBP’000 LBP’000

Real EstateProperties

Improvements andInstallations

Furniture andEquipment

LBP’000 LBP’000 LBP’000 LBP’000 LBP’000

Cost:

Balance, January 1, 2013 222,481,947 119,885,040 73,083,680 2,151,108 4,094,876 8,188,440 (1,400,000) 428,485,091

Additions 2,220,560 14,486,878 4,037,764 191,651 4,727,863 444,881 - 26,109,597

Disposals/retirements - (2,267,415) (1,517,409) (112,003) (232,574) (48,725) - (4,178,126)

Transfers - 6,414,113 (3,298,540) - (5,928,208) 2,812,635 - -

Transfers to intangible assets - - (158,659) - - - - (158,659)

Assets revaluation surplus 29,227,714 - - - - - - 29,227,714

Others (1,371,787) - - - - - - (1,371,787)

Effect from exchange rate changes - (1,392,803) (1,987,820) 7,019 (5,272) (1,201,468) - (4,580,344)

Balance December 31, 2013 252,558,434 137,125,813 70,159,016 2,237,775 2,656,685 10,195,763 (1,400,000) 473,533,486

Acquisition of subsidiary - 260,811 - - - - - 260,811

Additions 537,875 17,902,474 3,089,700 760,278 5,520,199 2,013,378 - 29,823,904

Disposals/retirements - (2,393,837) (1,180,383) (161,583) (444,965) (225,963) - (4,406,731)

Transfers - (177,063) 6,056,184 - (5,879,121) - - -

Effect from exchange rate changes - (862,103) (609,057) (27,893) - (737,533) - (2,236,586)

Balance December 31, 2014 253,096,309 151,856,095 77,515,460 2,808,577 1,852,798 11,245,645 (1,400,000) 496,974,884

Accumulated depreciation:

Balance, January 1, 2013 (22,748,470) (93,193,158) (49,743,487) (1,406,066) - (9,030,630) - (176,121,811)

Additions (1,846,730) (7,434,332) (5,804,492) (179,341) - (509,022) - (15,773,917)

Write-off on disposal - 2,280,971 1,477,569 84,364 - 30,924 - 3,873,828

Transfers - (3,032,957) 2,987,763 - - 45,194 - -

Transfers to assets acquired in satisfaction of loans 445,276 - - - - - - 445,276

Effect from exchange rate changes - 897,815 1,580,769 (4,616) - 1,446,363 - 3,920,331

Balance December 31, 2013 (24,149,924) (100,481,661) (49,501,878) (1,505,659) - (8,017,171) - (183,656,293)

Acquisition of subsidiary - (216,913) - - - - - (216,913)

Additions (1,856,801) (8,493,595) (6,660,409) (223,342) - (519,167) - (17,753,314)

Write-off on disposal - 378,325 1,020,175 113,548 - 149,123 - 1,661,171

Effect from exchange rate changes - 843,416 475,172 19,711 - 594,667 - 1,932,966

Balance December 31, 2014 (26,006,725) (107,970,428) (54,666,940) (1,595,742) - (7,792,548) - (198,032,383)

Net Book Value:

December 31, 2014 227,089,584 43,885,667 22,848,520 1,212,835 1,852,798 3,453,097 (1,400,000) 298,942,501

December 31, 2013 228,408,510 36,644,152 20,657,138 732,116 2,656,685 2,178,592 (1,400,000) 289,877,193

Advance Paymentson Capital

Expenditures Other

Allowance for Impairement

Loss on Propertyand EquipmentVehicles Total

During 2013, the Group adopted the revaluation model for land held for banking operations included under real estate properties. The fair value of land held for banking operations amounted to LBP49.1billion. This adoption resulted in a revaluation reserve of LBP29.23billion recognized in other comprehensive income. Fair value of this property as at December 31, 2014 approximates the fair value as at December 31, 2013.


141140

18. OTHER ASSETS

Receivables on properties sold with deferred payment (a) 23,962,670 23,271,337

Deferred tax asset (b) 5,877,809 3,900,353

Deferred asset under Central Bank of Lebanon – soft loan (c) 4,079,666 6,997,845

Prepayments, deferred charges and accrued income 24,845,617 26,120,898

Due from personnel 1,094,046 2,439,921

Regulatory blocked deposit (d) 1,580,019 1,580,019

Fair value of derivatives (e) 15,431,451 2,563,016

Intangible assets (f) 30,577,223 23,463,600

Receivables from customers on insurance operations 20,094,126 15,966,532

Other (g) 59,374,249 56,665,774

186,916,876 162,969,295

Balance beginning of year 53,304,662 53,896,128

Additions 609,029 230,881

Interest – Note 32 1,137,374 97,411

Collections (1,055,070) (919,758)

53,995,995 53,304,662

Deferred income (30,033,325) (30,033,325)


2014 2013

2014 2013

LBP’000

LBP’000

LBP’000

LBP’000

December 31,

(a) The movement of “Receivables on properties sold with deferred payment” for the years 2014 and 2013 is as follows:

“Receivables on properties sold with deferred payment” includes receivables from related parties amounting to LBP52.8billion net of deferred income in the amount of LBP30.03billion as at December 31, 2014 (LBP52.76billion and LBP30.03billion respectively in 2013).

(b) Deferred tax asset includes an amount of LBP1.1billion representing deferred tax on the change in fair value of financial assets at fair value through other comprehensive income (LBP2.2billion in 2013).

(c) During the first half of 2009, the Central Bank of Lebanon (“BDL”) granted the Group a soft loan in the amount of LBP91billion, maturing on April 21, 2016, in accordance with Decision number 6116 dated March 7, 1996, recorded under “Borrowings from banks and financial institutions” (Note 23). The loan proceeds are invested in Lebanese treasury bills pledged in favor of BDL until full repayment of the loan (Note 46). The present value of the net investment proceeds amounting to LBP19.5billion were used to finance write offs of debtors’ exposures under credit facilities used to refinance construction of property and acquisition of equipment damaged during the July 2006 war. Aggregate financing granted by the Group to the eligible debtors amounted to LBP25billion as at December 31, 2014 in addition to interest receivable in the amount of LBP249million (LBP23.72billion as at December 31, 2013 in addition to interest receivable in the amount of LBP236million). The interest differential between the investment in treasury bills and the soft loan and its related

Fair value of forward contracts 3,828,679 471,781

Fair value of currency option contracts - Note 25 11,602,772 2,091,235

15,431,451 2,563,016

2014 2013

LBP’000 LBP’000

December 31,

accrued interest in the amount of LBP20.5billion and LBP671.8million (LBP16.4billion and LBP520million, respectively in 2013), were deferred and netted against the financing granted to debtors.

(d) The regulatory blocked deposit represents a non-interest earning compulsory deposit placed with the Lebanese Treasury upon the inception of banks according to Article 132 of the Lebanese Code of Money and Credit, and is refundable in case of cease of operations.

(e) Fair value of derivatives consists of the following:

Advance payments on purchase of intangible assets as of December 31, 2014 includes LBP10.59billion representing the cost of a new core banking system.

The Group has, as at December 31, 2014, intangible assets commitments for the new core banking system (software) in the amount of LBP13.24billion (Nil as at December 31, 2013).

(f) Intangible assets are detailed as follows:

LBP’000LBP’000LBP’000LBP’000

Software Key Money

Advance Payments on Purchase of Intangible

Assets Total

Cost:Balance, January 1, 2013 22,398,571 3,295,329 - 25,693,900 Transfers from property and equipment 158,659 - - 158,659 Additions 20,356,552 - - 20,356,552 Effect from exchange rate changes (1,309,982) - - (1,309,982) Balance, December 31, 2013 41,603,800 3,295,329 - 44,899,129 Acquisition of subsidiary 1,326,897 - - 1,326,897 Additions 5,118,839 - 10,592,880 15,711,719 Effect from exchange rate changes (1,884,265) - - (1,884,265) Balance, December 31, 2014 46,165,271 3,295,329 10,592,880 60,053,480

Amortization:Balance, January 1, 2013 (15,382,469) (658,616) - (16,041,085) Amortization for the period (6,786,464) (206,209) - (6,992,673) Effect from exchange rate changes 1,598,229 - - 1,598,229 Balance, December 31, 2013 (20,570,704) (864,825) - (21,435,529) Acquisition of subsidiary (1,037,648) - - (1,037,648) Amortization for the period (7,835,823) (206,208) - (8,042,031) Exchange Rate Difference 1,038,951 - - 1,038,951 Balance, December 31, 2014 (28,405,224) (1,071,033) - (29,476,257)

Net Book Value:Balance, December 31, 2014 17,760,047 2,224,296 10,592,880 30,577,223 Balance, December 31, 2013 21,033,096 2,430,504 - 23,463,600


143142

(g) Included in other assets as at December 31, 2013 is an investment in a fund amounting to LBP22.6billion that was fully provided for in previous years and recorded as net under “Other”. During 2014, the Group wrote-back the provision previously setup against its investment in a fund in the amount of LBP22.6billion (USD15million) recorded it under “Write-back of provision for impairment of an investment in fund” in the consolidated statement of profit or loss for the year ended December 31, 2014. The investment value was recuperated.

19. DEPOSITS FROM BANKS AND FINANCIAL INSTITUTIONS

“Borrowings under sale and repurchase agreements” mature during the first quarter of 2015. The borrowings are secured by foreign government bonds classified under financial assets at amortized cost in the consolidated statement of financial position (Note 46).

Current deposits of banks and financial institutions 888,787 16,374,905 17,263,692

Money market deposits 106,000,000 108,157,187 214,157,187

Time deposits with the Central Bank of Lebanon - 1,004,565 1,004,565

Borrowings under sale and repurchase agreements - 280,167,986 280,167,986

Other short term deposits - 121,665,048 121,665,048

Money Market deposits – related parties - 13,059,312 13,059,312

Accrued interest payable 297,561 1,861,928 2,159,489

107,186,348 542,290,931 649,477,279

Current deposits of banks and financial institutions 161,763 15,067,772 15,229,535

Current deposits - related parties 5,538 304,801 310,339

Money market deposits 102,000,000 34,452,886 136,452,886

Borrowing under sale and repurchase agreements - 278,906,366 278,906,366

Other short term deposits - 132,485,502 132,485,502

Other short term deposits - related parties - 15,901,307 15,901,307

Accrued interest payable 89,765 2,318,964 2,408,729

102,257,066 479,437,598 581,694,664

LBP’000

LBP’000

LBP’000

LBP’000

LBP

LBP

LBP’000

LBP’000

December 31, 2014

December 31, 2013

C/V of F/Cy

C/V of F/Cy

Total

Total

Accrued interest payable is segregated between the different categories as follows:

Deposits from customers which are matched with an embedded derivative have been designated at fair value through profit or loss, where the underlying assets vary from product to product. An accounting mismatch would arise if customers’ deposits were accounted for at amortized cost, because the related derivative is measured at fair value with movements in the fair value taken through the income statement. By designating those deposits from customers at fair value, the change in the fair value of these deposits is recorded in the consolidated statement of profit or loss.

Customers’ deposits at fair value through profit or loss include deposits where the underlying monetary value is invested in products yielding variable returns depending on the performance of baskets of commodities, global indices or Lebanese Government bonds all hedged through an effective over-the-counter call option.

The changes in the fair value recognized on these deposits and the related derivatives acquired for hedging are broken down as follows:

Money market deposits 876,469 167,190 652,257 -

Borrowings under sale andrepurchase agreement 145,867 - 83,327 -

Other short term deposits 968,661 1,302 1,153,866 519,279

1,990,997 168,492 1,889,450 519,279

Customers’ deposits at fair value throughprofit or loss 40,817,280 40,817,280 48,472,160 48,472,160

Accrued interest payable 155,653 155,653 155,397 155,397

40,972,933 40,972,933 48,627,557 48,627,557

Customers’ deposits at fair valuethrough profit or loss 40,702,500 40,817,280 48,918,381 48,472,160

Related derivative contracts(held for hedging) 433,399 134,304 960,247 406,377

LBP’000

LBP’000

LBP’000

LBP’000

LBP’000

LBP’000

LBP’000

LBP’000

LBP’000

RelatedParties

Total

Fair Value Fair Value

Total

NonRelated

C/V of F/Cy

Initial Value Initial Value

C/V of F/Cy

NonRelated

LBP’000

LBP’000

LBP’000

December 31, 2013

December 31, 2013

December 31, 2013

December 31, 2014

December 31, 2014

December 31, 2014

RelatedParties

20. CUSTOMERS’ DEPOSITS AT FAIR VALUE THROUGH PROFIT OR LOSS


145144

21. CUSTOMERS’ DEPOSITS AT AMORTIZED COST

F/Cy Base Accounts

F/Cy Base Accounts

LBP Base Accounts

LBP Base Accounts

December 31, 2014

December 31, 2013

LBP’000

LBP’000

LBP’000

LBP’000

LBP’000

LBP’000

LBP’000

LBP’000

LBP’000

LBP’000

LBP’000

LBP’000

LBP’000

LBP’000

Current / demand deposits 211,001,012 33,801,872 244,802,884 880,258,905 610,615,872 1,490,874,777 1,735,677,661

Term deposits 3,839,775,466 317,331 3,840,092,797 11,407,843,739 734,857 11,408,578,596 15,248,671,393

Margins for irrevocable

import letters of credit - - - 1,039,314 7,681,226 8,720,540 8,720,540

Margins on letters of guarantee 4,098,339 1,050,963 5,149,302 15,060,037 7,265,808 22,325,845 27,475,147

Other margins 11,696,356 7,341,218 19,037,574 17,442,190 80,447,839 97,890,029 116,927,603

Accrued interest payable 22,055,348 - 22,055,348 49,406,257 - 49,406,257 71,461,605

4,088,626,521 42,511,384 4,131,137,905 12,371,050,442 706,745,602 13,077,796,044 17,208,933,949

Current / demand deposits 185,587,109 14,913,030 200,500,139 847,678,195 396,500,357 1,244,178,552 1,444,678,691

Term deposits 3,441,022,179 161,843 3,441,184,022 10,493,289,223 344,091 10,493,633,314 13,934,817,336

Margins for irrevocable importletters of credit - - - 1,377,862 5,581,783 6,959,645 6,959,645

Margins on letters of guarantee 4,592,507 901,627 5,494,134 11,855,728 6,254,568 18,110,296 23,604,430

Other margins 6,902,377 1,871,990 8,774,367 26,896,179 21,179,810 48,075,989 56,850,356

Accrued interest payable 20,025,156 - 20,025,156 39,764,129 - 39,764,129 59,789,285

3,658,129,328 17,848,490 3,675,977,818 11,420,861,316 429,860,609 11,850,721,925 15,526,699,743

InterestBearing

InterestBearing

Non-InterestBearing

Non-InterestBearing

Total

Total

InterestBearing

InterestBearing

Non-InterestBearing

Non-InterestBearing

Total

Total

Total

Total

Deposits from customers at amortized cost at December 31, 2014 include coded deposit accounts in the aggregate amount of LBP5.32billion (LBP8.36billion in 2013). These accounts are subject to the provisions of Article 3 of the Banking Secrecy Law dated September 3, 1956 which provides that the Bank’s management, in the normal course of business, cannot reveal the identities of these depositors to third parties.

Deposits from customers at amortized cost include at December 31, 2014 deposits linked to Lebanese Government bonds in the aggregate of LBP296.81billion (LBP324.82billion in 2013). These bonds are owned by the Group and are classified as financial assets at amortized cost (Note 46).

Deposits from customers at amortized cost at December 31, 2014 include deposits received from non-resident banks and financial institutions relating to their fiduciary clients for a total amount of LBP1.78trillion (LBP1.66trillion in 2013) out of which LBP1.39trillion are from a related company, a related bank and a subsidiary bank (LBP998.22billion in 2013).

22. RELATED PARTIES’ DEPOSITS AT AMORTIZED COST

F/Cy Base Accounts

F/Cy Base Accounts

LBP Base Accounts

LBP Base Accounts

December 31, 2014

December 31, 2013

LBP’000

LBP’000

LBP’000

LBP’000

LBP’000

LBP’000

LBP’000

LBP’000

LBP’000

LBP’000

LBP’000

LBP’000

LBP’000

LBP’000

Deposits from customers

Current / demand deposits 5,624,555 392,336 6,016,891 200,313,785 21,676,125 221,989,910 228,006,801

Term deposits 176,028,250 - 176,028,250 619,393,505 - 619,393,505 795,421,755

Margins and other collateral

Margins on letters of guarantee - 280,772 280,772 13,157 34,598 47,755 328,527

Other margins - 676 676 293,955 274 294,229 294,905

Accrued interest payable 396,888 - 396,888 948,193 - 948,193 1,345,081

182,049,693 673,784 182,723,477 820,962,595 21,710,997 842,673,592 1,025,397,069

Deposits from customers

Current / demand deposits 3,387,930 599,687 3,987,617 26,744,229 12,199,011 38,943,240 42,930,857

Term deposits 77,440,498 - 77,440,498 961,644,227 - 961,644,227 1,039,084,725

Margins and other collateral

Margins on letters of guarantee 200,000 63,380 263,380 13,016 3,317 16,333 279,713

Other margins - - - 302 - 302 302

Accrued interest payable 67,495 - 67,495 1,553,566 - 1,553,566 1,621,061

81,095,923 663,067 81,758,990 989,955,340 12,202,328 1,002,157,668 1,083,916,658

InterestBearing

InterestBearing

Non-InterestBearing

Non-InterestBearing

Total

Total

InterestBearing

InterestBearing

Non-InterestBearing

Non-InterestBearing

Total

Total

Total

Total


147146

23. BORROWINGS FROM BANKS AND FINANCIAL INSTITUTIONS AND CENTRAL BANKS

24. CERTIFICATES OF DEPOSIT

December 31,

2014 2013

LBP’000 LBP’000 LBP’000

Borrowings from the CentralBank of Lebanon – Note 46 55,447,728 376,875,000 432,322,728 29,858,102 - 29,858,102

Soft loan from the CentralBank of Lebanon – Note 18 and 46 90,936,000 - 90,936,000 90,936,000 - 90,936,000

Other long termborrowings – Note 46 - 258,949,018 258,949,018 - 270,955,179 270,955,179

Accrued interest payable 995,927 1,564,982 2,560,909 589,215 562,610 1,151,825

147,379,655 637,389,000 784,768,655 121,383,317 271,517,789 392,901,106

LBP LBPC/V of F/Cy C/V of F/CyTotal Total

LBP’000 LBP’000 LBP’000

Borrowings from Central Bank of Lebanon in LBP represent facilities in accordance with Central Bank of Lebanon Basic Decision No. 6116 of March 7, 1996 and its amendments by which the Group benefited from credit facilities granted against loans the Group has granted, on its own responsibility, to its customers, pursuant to certain conditions, rules and mechanism.

Borrowings from Central Bank of Lebanon in foreign currency represent a facility granted by the Central Bank of Lebanon in the amount of USD250million for the purpose of partially funding the purchase of certificates of deposit issued by the Central Bank of Lebanon denominated in US Dollars in the aggregate nominal value of USD500million (Note 12), of which an amount of USD250million was pledged in favor of the Central Bank of Lebanon (Note 46).

2014 2013

December 31,

Global certificates of deposit 753,750,000 753,750,000

Discount on issuance of global certificates of deposit (3,487,075) (4,667,764)

Accrued interest payable 1,800,625 1,800,625

752,063,550 750,882,861

C/V of F/Cy C/V of F/Cy

LBP’000 LBP’000

On December 14, 2012, the Group issued a USD500million Certificates of Deposits through an international bank summarized as follows:

Nominal amount of certificates USD 500,000,000 Issue price USD 497,300,000 Issue date December 14, 2012 Maturity December 14, 2017 Fixed rate of interest 5.375% Interest payment date December & June Outstanding amount (in LBP’000) 753,750,000

The Group has not had any defaults of principal, interest or other breaches with respect to its certificates of deposit during 2014 and 2013.

25. OTHER LIABILITIES

(a) During 2014, a subsidiary bank was subject to tax examination for the fiscal years 2009 to 2012. The tax assessment resulted in additional taxes including penalties amounting to LBP864million. The Group accrued for an amount of LBP429million during 2014 recorded under “Administrative expenses” in the consolidated statement of profit or loss. The remaining balance amounting to LBP435million was accrued for in previous years. Up to the date of issuance of these financial statements, the Group had not settled this tax liability.

During 2013, BankMed S.A.L. and one of its subsidiaries were subject to tax examination for the fiscal years 2008 until 2011. This tax assessment resulted in additional taxes and penalties amounting to LBP31billion after penalty deductions. The Group filed an appeal and has set up a provision in the amount of LBP17billion recorded under provision for contingencies as at December 31, 2013 (Note 26). The Group settled an amount of around LBP11.1billion during 2014.

The tax returns of BankMed S.A.L. for the years 2012 and 2013 and most of its subsidiaries for the years 2010 to 2014 remain subject to examination and final tax assessment by the tax authorities. Any additional tax liability depends on the results of these reviews.

Accrued income tax and other taxes (a) 20,936,076 16,353,826

Withheld taxes on staff benefits and payments to non-residents 5,570,235 6,266,171

Withheld tax on interest 8,141,294 3,129,020

Deferred tax liability (b) 8,491,147 10,380,947

Due to the Social Security National Fund 2,283,898 2,240,667

Checks and incoming payment orders in course of settlement 31,218,307 28,166,358

Blocked capital subscriptions for companies under incorporation 978,685 1,117,477

Accrued expenses 53,968,182 43,885,891

Financial guarantee contracts issued 2,941,428 3,478,862

Fair value of derivatives (c) 13,162,230 7,922,523

Unearned revenues 5,512,266 11,792,726

Payables from insurance operations 5,182,312 10,677,000

Sundry accounts payable 75,877,999 62,678,704

234,264,059 208,090,172

2014 2013

LBP’000 LBP’000

December 31,


149148

(b) Deferred tax liability consists of the following:

(c) Fair value of derivatives consists of the following:

The negative fair value of currency options is related to call and put options entered into by the Group with its customers and back-to-back with a non-resident bank. The offsetting positive fair value is recorded under “Other assets” (Note 18).

The following table explains the relationship between taxable income and accounting income:

2014 2013

2014 2013

2014 2013

December 31,

December 31,

December 31,

Deferred tax liability on financial assets at fairvalue through other comprehensive income - Note 30 2,461,147 50,211

Deferred tax liability on undistributed income of subsidiaries 6,030,000 6,030,000

Deferred tax liability on income from associates - Note 14 - 4,300,736

8,491,147 10,380,947

Fair value of forward contracts - 5,831,288

Fair value of currency option contracts – Note 18 11,602,772 2,091,235

Deferred option premium on currency option 1,559,458 -

13,162,230 7,922,523

Income before income tax 231,448,363 216,456,184

Income from subsidiaries, associates and foreign branches (31,129,967) (125,770,184)

200,318,396 90,686,000

Add: Non-deductible expenses 21,503,136 81,969,822

Add: Deductible losses recycled directly to retained earnings - (110,296,896)

Less: Non-taxable revenues or revenues subject

to tax in previous periods (97,511,371) (8,530,917)

Taxable income 124,310,161 53,828,009

Income tax (15%) 18,646,524 8,074,201

Non-refundable withheld tax - 4,202,264

18,646,524 12,276,465

Add: Income tax expense on subsidiaries and foreign branches 11,562,932 11,014,706

Income tax expense 30,209,456 23,291,171

LBP’000

LBP’000

LBP’000

LBP’000

LBP’000

LBP’000

2014 2013

2014 2013

2014 2013

December 31,

December 31,

December 31,

Provision for employees’ end-of-service indemnity 44,701,077 40,953,922

Provision for contingencies 42,281,598 37,558,520

Provision for loss on foreign currency position 738,127 936,710

Insurance technical provisions 14,554,116 -

102,274,918 79,449,152

Balance at January 1 40,953,922 37,694,975

Acquisition of a new subsidiary 168,171 -

Additions 6,723,278 9,689,811

Settlements (1,200,213) (2,583,056)

Write-back (1,387,288) (2,843,560)

Effect of exchange rate changes (556,793) (1,004,248)

Balance at December 31 44,701,077 40,953,922

Balance at January 1 37,558,520 15,739,928

Additions 19,630,739 27,889,184

Settlements (13,378,043) (3,569,840)

Write-back (565,124) (999,326)

Other 90,450 -


Balance at December 31 42,281,598 37,558,520

LBP’000

LBP’000

LBP’000

LBP’000

LBP’000

LBP’000

26. PROVISIONSProvisions consist of the following:

The movement of provision for employees’ end-of-service indemnity is as follows:

The movement of the provision for contingencies is as follows:


151150

The movement of the insurance technical provisions is as follows:

2014 2013

2014 2013

December 31,

December 31,

Balance at January 1 - -

Acquisition of a subsidiary 14,140,941 -

Additions 437,423 -

Effect of exchange rate changes (24,248) -

Balance at December 31 14,554,116 -

Non-cumulative perpetual redeemable Series 1

Preferred shares - Note 27 - 150,750,000

Non-cumulative perpetual redeemable Series 2 Preferred shares 339,187,500 339,187,500

Non-cumulative perpetual redeemable Series 3 Preferred shares 226,125,000 -

565,312,500 489,937,500

LBP’000

LBP’000

LBP’000

LBP’000

27. SHARE CAPITALThe capital of the Bank as at December 31, 2014 consists of 63,000,000 shares of LBP10,000 par value each, issued and fully paid (62,000,000 shares as at December 31, 2013).

On September 4, 2014, the extraordinary shareholders’ general assembly approved the redemption and cancellation of all the Non-cumulative perpetual redeemable series 1 Preferred shares in the amount of USD100million (Note 28), and the issuance of 1 million ordinary shares to be distributed to the ordinary shareholders on the basis of 1 share for each owner of 62 shares, for an aggregate value of LBP10billion to be transferred from retained earnings to share capital.

On March 27, 2014, the ordinary shareholders’ general assembly approved the distribution of dividends in the amount of LBP45.23billion (USD30million) to the ordinary shareholders.

On April 15, 2013, the ordinary shareholders’ general assembly approved the distribution of dividends in the amount of LBP47.67billion (USD31.6million) to the ordinary shareholders.

The Group has set up a special foreign currency position to the extent of USD71.15million as of December 31, 2014 and December 31, 2013 as a hedge of capital within the limits authorized by local banking regulations.

28. PREFERRED SHARES

2014 2013

March 24, 2014 April 15, 2013Date

December 31,

Legal reserve 116,763,107 100,511,453

Property revaluation reserve 3,213,000 3,213,000

Reserve for general banking risks 176,998,151 154,441,109

Special reserves available for distribution 10,377,755 10,377,755

Reserves for assets acquired in satisfaction of loans – Note 15 50,101,022 27,385,641

Total 357,453,035 295,928,958

Series 1 preferred shares 11,683,125 11,683,125

Series 2 preferred shares 22,895,156 22,895,156

34,578,281 34,578,281

LBP’000

LBP’000

LBP’000

LBP’000

29. RESERVES

Number of shares 1,000,000 2,250,000 1,500,000

Share’s issue price USD100 USD100 USD100

Share’s nominal value LBP10,000 LBP10,000 LBP10,000

Issue premium LBP140,750,000,000 LBP316,687,500,000 LBP211,125,000,000

Benefits USD7.75 payable in arrear USD6.75 payable in arrear USD6.5 payable in arrear

Series 1

Non-Cumulative Perpetual Redeemable Preferred Shares

Series 2 Series 3

During 2014, the Group issued Non-cumulative Perpetual Redeemable Series 3 Preferred Shares for an amount of LBP226.13billion (USD150,000,000) in accordance with the decision of the extraordinary general assembly of shareholders in its meeting held on September 4, 2014 and after the approval of the Central Bank of Lebanon dated October 27, 2014.

The Group’s issued preferred shares carry the following terms:

Subject to compliance with applicable ratios and regulations, the Group may at its option, at each redemption date, redeem and cancel all or any part of the Series 1, Series 2 and Series 3 preferred shares (but not less than 20%, each time, of the original issue size or, if less, 100% of the outstanding balance of Series1, Series 2 or Series 3 preferred shares).

Redemption date means any time after the issue date, if a regulatory event occurs or for the first time within a set period following the lapse of a 5 years period as of the date of the Ordinary General Assembly held to approve the accounts of the Bank for the immediately preceding fiscal year, in its sole discretion, at a redemption price equal to 100% of the Issue Price.

On September 4, 2014, the extraordinary shareholders’ general assembly approved the redemption of Series 1 Preferred Shares. (Note 27).

The ordinary shareholders’ general assembly approved the distribution of dividends to the holders of the preferred shares as follows:


153152

Legal reserve is constituted in conformity with the requirements of the Lebanese Money and Credit Law on the basis of 10% of net profit. This reserve is not available for distribution.

During 2013, the Group transferred property revaluation reserves in the amount of LBP29.23billion to retained earnings. This amount is not available for distribution (Note 17).

The reserve for general banking risks is constituted according to local banking regulations, from net profit, on the basis of a minimum of 2 per mil and a maximum of 3 per mil of the total risk weighted assets, off-balance sheet risk and global exchange position as defined for the computation of the solvency ratio at year-end. This reserve should reach 1.25% of total risk weighted assets, off-balance sheet risk and global exchange position at year 10 and 2% of that amount at year 20. This reserve is constituted in Lebanese Pounds and in foreign currencies in proportion to the composition of the Group’s total risk weighted assets and off-balance sheet items. This reserve is not available for distribution.

30. CUMULATIVE CHANGE IN FAIR VALUE OF FINANCIAL ASSETS THROUGH OTHER COMPREHENSIVE INCOME

December 31, 2014 December 31, 2013

LBP’000 LBP’000 LBP’000

Unrealized loss on equity securities 12,639,427 (1,374,927) 11,264,500 (11,755,157) 2,213,970 (9,541,187)

Unrealized gain on fair value ofsecurities from associatesand others 6,968,966 - 6,968,966 5,959,419 - 5,959,419

19,608,393 (1,374,927) 18,233,466 (5,795,738) 2,213,970 (3,581,768)

Cumulative Change in Fair Value

Deferred Tax Total

LBP’000 LBP’000 LBP’000

Cumulative Change in Fair Value

Deferred Tax Total

2014 2013

December 31,

Capital 283,335,261 230,741,229

Reserves and retained earnings 23,664,851 16,142,469

Currency translation adjustment (61,835,112) (44,688,391)

Profit for the year 12,531,195 8,313,838

257,696,195 210,509,145

LBP’000 LBP’000

31. NON-CONTROLLING INTEREST

2014 2013

2014 2013



Interest income from:

Deposits with the central banks 152,813,415 151,522,118

Deposits with banks and financial institutions 11,183,366 11,010,238

Deposits with related party banks and financial institutions 1,038,865 1,232,085

Financial assets at amortized cost 424,143,784 325,943,304

Reverse repurchase agreements and loans to banks 22,653,750 11,943,310

Loans and advances to customers 565,683,253 494,268,704

Loans and advances to related parties 18,976,423 21,479,433

Receivables on properties sold with deferred payment – Note 18 1,137,374 97,411

Interest recognized on impaired loans and advances to customers – Note 10 7,725,794 10,637,399

1,205,356,024 1,028,134,002

Interest expense on:

Deposits from banks and financial institutions 8,021,251 8,620,566

Deposits from related party banks and financial institutions 1,141,697 576,672

Securities lent and repurchase agreements 23,979,503 12,927,971

Customers’ deposits at amortized cost 690,073,883 602,308,044

Related parties’ deposits at amortized cost 28,540,451 21,038,901

Borrowings from banks and financial institutions and central banks 10,353,998 8,589,860

Certificates of deposit 40,798,388 41,733,774

Other 4,723,055 369,387

807,632,226 696,165,175

LBP’000

LBP’000

LBP’000

LBP’000

32. INTEREST INCOME

Interest income realized on impaired loans and advances to customers represent recoveries of interest. Accrued interest on impaired loans and advances is not recognized until recovery or a rescheduling agreement is signed with customers.

Interest income on assets held at fair value through profit or loss, and other instruments designated at fair value through profit or loss is included under “Net result on financial instruments at fair value through profit or loss” (Note 36).

33. INTEREST EXPENSE

Interest expense on customers’ and related parties’ deposits at fair value through profit or loss is included under “Net result on financial instruments at fair value through profit or loss” (Note 36).


155154

2014 2013

2014 2013

2014 2013




Commission on documentary credits 6,132,002 5,006,836

Commission on acceptances 2,242,764 2,221,857

Commission on letters of guarantee 18,884,579 17,358,864

Service fees on customers’ transactions 61,617,996 50,122,621

Brokerage fees 2,022,493 1,830,163

Commission on transactions with banks 715,582 941,142

Asset management, placement and underwriting fees 14,707,675 13,150,474

Commissions on fiduciary activities 2,696,249 2,424,523

Other 3,751,998 3,913,347

112,771,338 96,969,827

Interest income on assets at fair value through profit or loss 38,421,055 28,988,155

Change in fair value of financial assets at fairvalue through profit or loss – Note 8 2,458,115 33,824

Interest expense on customers’ deposits at fairvalue through profit or loss (2,638,737) (2,859,803)

Fee income on customers’ deposits at fair value through profit or loss 28,067 17,690

Dividends received on assets at fair value through profit or loss 60,949 60,949

(Loss)/gain on sale of financial assets at fair value through profit or loss (4,538,476) 1,098,283

33,790,973 27,339,098

Commission on transactions with banks and financial institutions 10,926,069 9,355,212

Safe custody charges 755,812 512,439

Other 7,755,282 4,907,593

19,437,163 14,775,244

LBP’000

LBP’000

LBP’000 LBP’000

LBP’000

LBP’000

34. FEE AND COMMISSION INCOME

36. NET RESULTS ON FINANCIAL INSTRUMENTS AT FAIR VALUE THROUGH PROFIT OR LOSS

35. FEE AND COMMISSION EXPENSE

2014 2013

2014 2013

2014 2013




Gain on sale of an associate – Note 14 4,731,216 -

Dividends from equity investment securities – Note 12 7,577,180 3,755,823

Income from associates at equity method – Note 14 3,964,638 15,005,175

Gain on disposal of property and equipment 354,826 36,284

Foreign exchange gain 38,148,654 34,418,906

Commission from insurance brokerage 16,601,530 8,017,070

Net insurance income 66,356 -

Gain on sale of assets acquired in satisfaction of loans 2,806,413 1,707,142

Other 16,145,751 26,060,222

90,396,564 89,000,622

Professional fees and outsourcing services 35,082,555 34,232,373

Travel and hotel expenses 2,513,896 2,125,762

Rent charges 19,870,051 16,442,606

Cleaning and maintenance of office premises 4,975,945 5,298,316

Electricity and fuel charges 6,353,989 6,976,723

Marketing and advertising expenses 25,894,220 24,258,026

Communication fees (telephones, fax, swift, etc...) 5,207,605 5,497,461

Furniture and equipment maintenance 6,353,015 4,718,327

Hardware and software maintenance 11,871,361 9,834,840

Insurance expense 3,584,019 3,668,972

Subscriptions fees 5,621,119 5,730,240

Printing, stationery, and office supplies 4,059,222 3,352,346

Fiscal stamps and other taxes 10,964,479 11,644,671

Other 27,080,866 32,627,481

169,432,342 166,408,144

Insurance income earned 13,892,466 -

Insurance expense incurred (13,826,110) -

66,356 -

LBP’000

LBP’000

LBP’000

LBP’000

LBP’000

LBP’000

37. OTHER OPERATING INCOME (NET)

38. ADMINISTRATIVE EXPENSES

This caption consists of the following:

This caption consists of the following:

Net insurance income consists of the following:


157156

39. EARNINGS PER SHAREBasic earnings per share is calculated by dividing the net profit for the year attributable to ordinary equity holders of the Group by the weighted average number of ordinary shares outstanding during the year.

Diluted earnings per share is calculated by dividing the net profit attributable to ordinary equity holders of the Group by the weighted average number of ordinary shares outstanding during the year plus the weighted average number of ordinary shares that would be issued on the conversion of all the dilutive potential shares into ordinary shares.

The following table shows the income and share data used in the basic earnings per share calculation:

40. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISKSThe guarantees and standby letters of credit and the documentary and commercial letters of credit represent financial instruments with contractual amounts representing credit risk. The guarantees and standby letters of credit represent irrevocable assurances that the Group will make payments in the event that a customer cannot meet its obligations to third parties and are not different from loans and advances on the statement of financial position. However, documentary and commercial letters of credit, which represent written undertakings by the Group on behalf of a customer authorizing a third party to draw drafts on the Group up to a stipulated amount under specific terms and conditions, are collateralized by the underlying shipments documents of goods to which they relate and, therefore, have significantly less risks.

Forward exchange contracts outstanding as of December 31, 2014 and 2013 represent positions held for customers’ accounts and at their risk. The Group entered into such instruments to serve the needs of customers, and these contracts are fully hedged by the Group. The forward exchange contracts outstanding as at December 31, 2014 include a forward transaction for the purchase of USD93.13million versus CHF87.1million (USD93.57million versus CHF87.1million as at December 31, 2013). This transaction was effected to hedge the investment in the Swiss banking subsidiary.

2014 2013

2014 2013

Weighted average number of common shares outstanding

during the period 63,000,000 62,000,000

Net profit attributable to equity holders of the parent 188,707,712 184,851,175

(Less): Proposed dividends to preferred shares (37,593,281) (34,578,281)

Net profit attributable to equity holders of the parent 151,114,431 150,272,894

Basic earnings per share in LBP’000 2.40 2.42

LBP’000

LBP’000

LBP’000

LBP’000

41. FIDUCIARY DEPOSITS AND ASSETS UNDER MANAGEMENTThis caption consists of the following:

Fiduciary deposits invested in depositswith non-resident banks 88,923,907 139,271,341 228,195,248

Fiduciary deposits invested in securities portfolio 51,248,747 143,704,608 194,953,355

Fiduciary deposits invested in back-to-back lending 43,952,140 - 43,952,140

184,124,794 282,975,949 467,100,743

Assets under management invested insecurities portfolio 255,894,337 951,479,097 1,207,373,434

440,019,131 1,234,455,046 1,674,474,177

Fiduciary deposits invested in depositswith non-resident banks 156,160,869 97,599,617 253,760,486

Fiduciary deposits invested in securities portfolio 37,415,395 146,041,233 183,456,628

Fiduciary deposits invested in back-to-back lending 68,675,350 - 68,675,350

262,251,614 243,640,850 505,892,464

Assets under management invested insecurities portfolio 86,548,857 753,287,228 839,836,085

348,800,471 996,928,078 1,345,728,549

LBP’000

LBP’000

LBP’000

LBP’000

Lebanon

Lebanon

LBP’000

LBP’000

December 31, 2014

December 31, 2013

Other Countries

Other Countries

Total

Total

Fiduciary accounts and assets under management are segregated as follows:

Fiduciary deposits:

Non-discretionary 184,124,794 282,975,949 262,251,614 243,640,850

184,124,794 282,975,949 262,251,614 243,640,850

Assets under management:

Non-Discretionary 255,894,337 951,479,097 86,548,857 753,287,228

255,894,337 951,479,097 86,548,857 753,287,228

440,019,131 1,234,455,046 348,800,471 996,928,078

LBP’000LBP’000LBP’000

OtherCountriesLebanon Lebanon

LBP’000

December 31, 2013December 31, 2014

Other Countries


159158

42. BALANCES / TRANSACTIONS WITH RELATED PARTIESIn the ordinary course of its activities, the Group conducts transactions with related parties including shareholders, directors, subsidiaries and associates.

Loans and advances and deposits of related parties other than related banks and financial institutions consist of the following (excluding accrued interest receivable/payable).

Interest rates charged on balances outstanding are the same rates that would be charged in an arm’s length transaction.

The financial statements include balances with banks and related parties that are reflected under deposits with banks and financial institutions, loans and advances to related parties, deposits from related parties, other assets, other liabilities and off balance sheet accounts. Refer to the statement of financial position and notes thereto.

Related party transactions not disclosed elsewhere in the notes to the consolidated financial statements are as follows:

- General operating expenses include approximately LBP33.7billion for the year ended December 31, 2014 (LBP31.4billion for the year ended December 31, 2013) of which LBP2.4billion (LBP1.85billion in 2013) are accrued for under “Other liabilities” and represent charges for services rendered to the Group by related party companies.

- “Other Assets” and “Other Liabilities” include balances with related parties in the amount of LBP10.2billion and LBP7.6million respectively, as at December 31, 2014 (LBP19.5billion and LBP944million, respectively, as at December 31, 2013).

- Other operating income includes approximately LBP10billion for the year ended December 31, 2014 (LBP20.3million for the year ended December 31, 2013) representing income from related parties for services rendered by the Group.

- Acceptances payable include acceptances payable to a related bank in the amount of LBP149million as at December 31, 2014 (LBP46.6million as at December 31, 2013).

- Acceptances receivable include acceptances receivable from related parties in the amount of LBP2.8billion as at December 31, 2014 (LBP2.7billion as at December 31, 2013).

- Guarantees, and standby letters of credit include guarantees issued on behalf of related parties in favor of third parties in the amount of LBP18.6billion as at December 31, 2014 (LBP15.5billion as at December 31, 2013).

- Guarantees, and standby letters of credit include guarantees issued to the benefit of related parties on behalf of third parties in the amount of LBP46.6billion as at December 31, 2014 (LBP43.16billion as at December 31, 2013).

2013

Year End Balance

2014

Year End Balance

Shareholders, directors and other key managementpersonnel and close family members:

Secured loans and advances 11,965,023 6,341,137

Unsecured loans and advances 2,996,024 -

Deposits 205,173,410 57,569,314

Related party companies:

Secured loans and advances 273,795,335 274,121,545

Deposits 818,878,578 1,024,726,283

LBP’000 LBP’000

- Documentary and commercial letters of credit include letters of credit issued on behalf of related parties in favor of third parties in the amount of LBP49billion as at December 31, 2014 (LBP71billion as at December 31, 2013).

- Documentary and commercial letters of credit include letters of credit issued to the benefit of related parties on behalf of third parties in the amount of LBP867million as at December 31, 2014 (LBP575million as at December 31, 2013).

- Forward exchange contracts receivable include balances receivable from related parties in the amount of LBP41billion as at December 31, 2014 (nil as at December 31, 2013).

- Forward exchange contracts payable include balances payable to related parties in the amount of LBP41billion as at December 31, 2014 (nil as at December 31, 2013)

- Fiduciary deposits from related parties in the amounted to LBP99billion as at December 31, 2014 (LBP97billion as at December 31, 2013).

- Fiduciary deposits in related parties in the amounted to LBP110billion as at December 31, 2014 (LBP114billion as at December 31, 2013).

43. NOTES TO THE STATEMENT OF CASH FLOWSCash and cash equivalents for the purpose of the statement of cash flows consist of the following:

Time deposits with and from Central Banks and banks and financial institutions represent inter-bank placements and borrowings with an original term of 90 days or less.

The following operating, investing and financing activities, which represent non-cash items were excluded from the consolidated cash flow statement as follows:

(a) Net increase in change in fair value of financial assets at fair value through other comprehensive income, deferred tax asset and deferred tax liability in the amounts of LBP21.8billion, LBP1.2billion and LBP2.4billion, respectively, against investment securities for the year ended December 31, 2014 (Net increase in change in fair value of financial assets at fair value through other comprehensive income and deferred tax asset in the amounts of LBP72billion and LBP7.95billion, respectively, against investment securities for the year ended December 31, 2013).

(b) Increase in assets acquired in satisfaction of debts in the amount of LBP11.6billion against loans and advances to customers for the year ended December 31, 2014 (increase in assets acquired in satisfaction of debts in the amount of LBP35.8billion against loans and advances to customers for the year ended December 31, 2013 and decrease in the amount of LBP445million against increase in property and equipment).

2014 2013

December 31,

Cash 162,289,925 125,096,661

Checks in the course of collection 62,712,098 55,383,749

Current accounts with central banks 153,963,036 142,726,807

Time deposits with central banks 27,000,000 21,930,000

Current accounts with banks and financial institutions 180,021,242 283,244,856

Time deposits with banks and financial institutions 982,462,928 1,996,692,344

Demand deposits from banks (17,263,692) (15,539,874)

Time deposits from banks (185,539,891) (191,338,499)

1,365,645,646 2,418,196,044

LBP’000 LBP’000


161160

(c) Increase in deferred tax liability on income from associates and increase in change in fair value of securities at fair value through other comprehensive income in the amount of LBP395million and LBP51million, respectively, against investments in associates and other investments for the year ended December 31, 2013.

(d) Decrease in retained earnings in the amount of LBP471million against decrease in provision for employees’ end-of-service indemnity as of December 31, 2014 (increase of LBP402million as of December 31, 2013).

(e) Increase in property and equipment in the amount of LBP29.23billion against retained earnings for the year ended December 31, 2013.

(f) Increase in share capital in the amount of LBP10billion against decrease in retained earnings.

44. ACQUISITIONSOn December 29, 2014, the Group acquired a 100% equity stake in Continental Trust Insurance and Reinsurance S.A.L. in Lebanon for a total consideration of LBP7billion fully paid in 2014.

During 2014, Turkland Bank A.S. increased its capital by an amount of TRL150million in which the Group participated according to its percentage of ownership. The Group’s share of the capital increase which is equivalent to USD35.27million (TRL75million) at the date of the increase was fully paid. As a result of this capital increase, non-controlling interests increased by an amount of LBP48.8billion during 2014.

During 2014, the Group incorporated GMIB KSA, a 55% owned subsidiary with a capital of SAR3million (LBP1.2billion) and settled its share in the capital in the amount of LBP664million. As a result, non-controlling interests increased by an amount of LBP542.3million during 2014.

During 2013, the Group acquired 55% of Demir Sigorta A.S., an insurance company in Turkey for a total consideration of LBP2.31billion fully paid in 2013. During 2013 and subsequent to the acquisition, the Group subscribed into its share of the capital increase of the company in the amount of LBP4.54billion. Upon finalization of the acquisition price allocation in 2014, the excess of the consideration paid over the fair value of the net assets in the amount of LBP1billion was recorded under “Goodwill” (Note 16).

During 2013, Turkland Bank A.S. increased its capital by an amount of TRL200million in which the Group participated according to its percentage of ownership. The Group’s share of the capital increase which is equivalent to USD52.83million (TRL100million) at the date of the increase was fully paid. As a result of this capital increase, non-controlling interests increased by an amount of LBP79.6billion during 2013.

Cynvest S.A.L. Holding, a wholly owned subsidiary increased its capital in 2014 by an amount of LBP9.8billion fully paid in 2014 (by an amount of LBP9.3billion in 2013 fully paid in 2013).

During 2013, Emkan Finance S.A.L., which is wholly owned by the Group, increased its capital by an amount of LBP3billion which was fully paid in 2013.

45. MATERIAL PARTLY - OWNED SUBSIDIARIESTurkland Bank A.S. is a material partly – owned subsidiary with a 50% equity stake of the Group.

Summarized statement of profit or loss:

Summarized statement of financial position:

Demir Sigorta A.S. is a partly-owned subsidiary with a 55% equity stake of the Group.

2014 2013

2014 2013

2014 2013


December 31,

Total Assets 3,309,051,938 2,925,087,024

Total Liabilities 2,806,008,313 2,507,879,222

Total Equity 503,043,625 417,207,802

Attributable to non-controlling interest 251,521,813 208,603,901

Profit for the year 22,312,527 16,592,112

Attributable to non-controlling interest 11,156,264 8,296,056

Interest income 305,864,653 222,435,011

Interest expense (179,183,412) (126,995,276)

Fee and commission income 20,482,162 18,751,268

Fee and commission expense (1,123,727) (1,084,732)

Net gain from sale of financial assets at amortized cost - 5,872,458

Other operating income 16,294,728 1,861,013

Staff costs (47,288,907) (46,299,329)

Administrative expenses (33,772,472) (39,333,417)

ASSETS

Cash and deposits with central bank 310,711,401 325,133,718

Deposits with banks and financial institutions 177,834,779 202,242,106

Loans and advances to customers 2,182,937,351 1,875,412,666

Investment Securities 570,634,541 456,102,389

LIABILITIES

Deposits from banks and financial institutions 388,640,611 463,487,410

Customers’ deposits at amortized cost 2,285,740,717 1,948,889,321

Related parties’ deposits at amortized cost 58,133,034 23,323,052

LBP’000

LBP’000

LBP’000

LBP’000

LBP’000

LBP’000

Summarized financial information of the subsidiary are provided below. This information is based on amounts before inter-company eliminations:


163162

Summarized financial information of the subsidiary are provided below. This information is based on amounts before inter-company eliminations:

Summarized statement of profit or loss:

Summarized statement of financial position:

Total Assets 23,336,809

Total Liabilities 17,110,544

Total Equity 6,226,265

Attributable to non-controlling interest 2,801,819

Loss for the year (1,389,751)

Attributable to non-controlling interest (625,388)

Interest income 1,693,270

Insurance income earned 13,892,466

Insurance expense incurred (13,826,110)

Staff costs (2,189,300)

ASSETS

Deposits with banks and financial institutions 14,861,374

Other assets 6,744,806

LIABILITIES

Other liabilities 2,378,208

Technical provisions 14,554,116

LBP’000

LBP’000

LBP’000

Year EndedDecember 31, 2014



The carrying values of financial assets given as collateral are as follows as at December 31, 2014:

In addition to the above, the Group has pledged “Other government bonds at amortized cost” with an aggregate value of LBP40.25billion (LBP12.92billion as at December 31, 2013) in favor of the Central Bank of Turkey and the Turkish Stock Exchange against rights to perform and enter into money market and other open market operations.

Over and above, the Group had contractual right of setoff arrangements with correspondent banks, details of which are disclosed under Note 7.

The carrying values of financial assets given as collateral are as follows as at December 31, 2013:

46. COLLATERAL GIVEN

Lebanese Government bondsat amortized cost - Note 23 351,850,500 Long term borrowing 188,437,500

Lebanese Government bondsat amortized cost - Note 23 90,936,000 Soft loan 90,936,000

Other foreign government bondsat amortized cost - Note 19 280,167,986 280,167,986

Pledged deposits with banksand financial institutions - Note 7 31,356,000 31,356,000

Lebanese Government bondsat amortized cost - Note 21 296,811,675 296,811,675

Certificates of deposit with theCentral Bank of Lebanon - Note 23 376,875,000 376,875,000

Lebanese Government bondsat amortized cost - Note 23 351,850,500 Long term borrowing 188,437,500

Lebanese Government bondsat amortized cost - Note 23 90,936,000 Soft loan 90,936,000

Other foreign government bondsat amortized cost - Note 19 278,906,366 278,906,366

Pledged deposits with banksand financial institutions- Note 7 38,378,516 38,378,516

Lebanese Government bonds

at amortized cost - Note 21 324,821,025 324,821,025

LBP’000

LBP’000

Pledged Amount

Pledged Amount

LBP’000

LBP’000

Corresponding Facilities

Corresponding Facilities

Nature ofFacility

Nature ofFacility

Amount of Outstanding

Facilities

Amount of Outstanding

Facilities

Borrowings under sale and repurchase agreements

Borrowings under sale and repurchase agreements

Customers’ depositsat amortized cost

Customers’ depositsat amortized cost

Central Bank Time borrowing

Participation inletter of credit

Participation inletter of credit


165164

47. CAPITAL MANAGEMENT

The Group’s objectives when managing capital are to comply with the capital requirements set by the Central Bank of Lebanon, the Group’s main regulator, to safeguard the Group’s ability to continue as a going concern and to maintain a strong capital base.

Risk weighted assets and capital are monitored periodically to assess the quantum of capital available to support growth and optimally deploy capital to achieve targeted returns.

The Central Bank of Lebanon requires each bank or banking group to hold a minimum level of regulatory capital of LBP10billion for the head office and LBP500million for each local branch and LBP1.5billion for each branch abroad. In addition, the Group is required to observe the minimum capital adequacy ratio set by the main regulator at 11.50% as at December 31, 2014.

The Group monitors the adequacy of its capital using the methodology and ratios established by Central Bank of Lebanon. These ratios measure capital adequacy by comparing the Group’s eligible capital with its balance sheet assets, commitments and contingencies, and notional amount of derivatives at a weighted amount to reflect their relative risk.

The Group’s capital is split as follows:

Tier I capital: Comprises share capital after deduction of treasury shares, shareholders’ cash contribution to capital, non-cumulative perpetual preferred shares, share premium, reserves from appropriation of profits and retained earnings. Goodwill and cumulative unfavorable change in fair value of securities at fair value through other comprehensive income are deducted from Tier I Capital.

Tier II capital: Comprises qualifying subordinated liabilities, cumulative favorable change in fair value of securities at fair value through other comprehensive income and revaluation surplus of owned properties.

Certain investments in financial and non-financial institutions are ineligible and are deducted from Tier I and Tier II.

Furthermore, various limits are applied to the elements of capital base: Qualifying Tier II capital cannot exceed Tier I capital and qualifying short term subordinated loan capital may not exceed 50% of Tier I capital.

The Group has complied with the regulatory capital requirement throughout the period.

The Group’s consolidated capital adequacy ratio based on the Central Bank of Lebanon directives applicable as at December 31, 2014 and 2013 amounted to 14.31% and 14.01% respectively, and is determined as follows:

20132014

December 31,

Risk-weighted assets 13,513,730 12,706,184

Credit risk 11,969,979 11,397,461

Market risk 592,899 436,565

Operational risk 950,852 872,158

Tier I capital (including net income less proposed dividends and

reserves for assets acquired in satisfaction of loans) 1,757,387 1,601,900

Tier II capital 176,283 178,257

Total capital 1,933,670 1,780,157

Capital adequacy ratio - Tier I 13.00% 12.61%

Capital adequacy ratio - Tier I and Tier II 14.31% 14.01%

LBP’million LBP’million

48. FINANCIAL RISK MANAGEMENT

The Group’s activities are principally related to the use of financial instruments including derivatives. It accepts deposits from customers at both fixed and floating rates and for various periods and seeks to earn interest margins by investing these funds in high quality assets. It also seeks to increase these margins by consolidating short-term funds and lending for longer periods at higher rates while maintaining sufficient liquidity to meet all claims that may fall due.

The Group also seeks to raise interest margins through lending to commercial and retail borrowers with a range of credit standing. Such exposures include guarantees and other commitments such as letters of credit and performance and other bonds.

With the exception of specific hedging arrangements, foreign exchange and interest rate exposures associated with derivatives are normally offset by entering into counter balancing positions, thereby controlling the variability in the net cash amounts required to liquidate market positions.

Risk management is a systematic process of identifying and assessing the Group risks and taking actions to protect the Group against these risks.

The use of financial instruments also brings with it associated inherent risks. The Group recognizes the relationship between returns and risks associated with the use of financial instruments and the management of risks forms an integral part of the Group’s strategic objectives.

The strategy of the Group is to maintain a strong risk management culture and manage the risk/reward relationship within and across each of the Group’s major risk-based lines of business. The Group continuously reviews its risk management policies and practices to reflect changes in markets, products and emerging best practice.

The Group has exposure to the following risks from its use of financial instruments:

- Credit risk- Liquidity risk- Market risk- Operational risk

A – Credit RiskCredit risk is the risk of financial loss to the Group if counterparty to a financial instrument fails to discharge an obligation. Financial assets that are mainly exposed to credit risk are deposits with banks, loans and advances to customers and other banks and investment securities. Credit risk also arises from off-balance sheet financial instruments such as letters of credit and letters of guarantee.

Concentration of credit risk arises when a number of counterparties are engaged in similar business activities, or activities in the same geographic region, or have similar economic features that would cause their ability to meet contractual obligations to be similarly affected by changes in economic, political or other conditions. Concentrations of credit risk indicate the relative sensitivity of the Group’s performance affecting a particular industry or geographical location.

Concentrations of credit risk indicate the relative sensitivity of the Group’s performance to developments affecting a particular industry or geographical location. The Group limits the impact of concentration risk in exposure by setting progressively lower limits for longer tenors and taking security, where considered appropriate, to mitigate such risks.

1. Management of credit riskThe Group attempts to control credit risk by monitoring credit exposures, limiting transactions with specific counterparties, and continually assessing the creditworthiness of counterparties. The Group’s risk management policies are designed to identify and to set appropriate risk limits and to monitor the risks and adherence to limits. Actual exposures against limits are monitored daily. In certain cases the Group may also close out transactions or assign them to other counterparties to mitigate credit risk. The Group’s credit risk for derivatives represents the potential cost to replace the derivative contracts if counterparties fail to fulfill their obligation, and to control the level of credit risk taken, the Group assesses counterparties using the same techniques as for its lending activities.


167166

The Group seeks to manage its credit risk exposure also through diversification of lending activities to ensure that there is no undue concentration of risks with individuals or groups of customers in specific locations or business. It also takes security when appropriate and also seeks additional collateral from the counterparty as soon as impairment indicators are noticed for the relevant individual loans and advances.

Management monitors the market value of collateral, requests additional collateral in accordance with the underlying agreement and monitors the market value of collateral obtained during its review of the adequacy of the allowance for impairment losses.

The Group regularly reviews its risk management policies and systems to reflect changes in markets products and emerging best practices.

2. Measurement of credit riska) Loans and advancesThe Group assesses the probability of default of individual counterparties using internal rating tools. The Group’s rating scale reflects the range of default probabilities defined for each rating class as explained below:

• Watch List: Loans and advances rated Watch List are loans that are not impaired but for which the Group determines that they require special monitoring.

• Past due but not impaired: Loans past due but not impaired are loans where contractual interest or principal are past due but the Group’s management believes that impairment is not appropriate on the basis of the level of collateral available and the stage of collection of amounts owed to the Group.

• Substandard loans: Substandard loans are loans that are inadequately protected by current sound worth and paying capacity of the obligor or by any collateral pledged in favor of the group. Exposures where an indication of the possibility that the Group will sustain a loss if certain irregularities and deficiencies are not addressed exists are classified under this category. The Group does not provide against these loans but it defers the recognition of interest income under unrealized interest.

• Doubtful loans: Doubtful loans have, in addition to the weaknesses existing in substandard loans, characteristics indicating that current existing facts and figures make the collection in full highly improbable. The probability of loss is high but certain reasonable and specific pending factors which if addressed could strengthen the probability of collection, result in the deferral of the exposure as an estimated loss until a more exact status is determined. These loans are provided for and interest income recognition is deferred.

• Loss: Loans classified as loss are considered as uncollectible and of such minimal value that their classification as assets is not warranted. This does not mean that the loan is absolutely unrecoverable or has no salvage value. However, the amount of loss is difficult to measure and the Group does not wish to defer the writing of the loan even partial recovery might occur in the future. Loans are charged off in the period in which they are deemed uncollectible and therefore classified as loss.

The Group establishes an allowance for impairment that represents its estimate of incurred losses in its loan portfolio. The main component of its allowance are specific loss component that relate to individually significant exposures, and a minor part of a collective loan loss allowance established for retail and Small and Medium Enterprises (SME’s) where there is objective evidence that unidentified losses exist at the reporting date. This provision is estimated based on various factors including credit ratings allocated to a borrower or group of borrowers, the current economic conditions, the experience the Group has had in dealing with a borrower or group of borrowers and available historical default information.

The Group writes off a loan/security balance (and any related allowances for impairment losses) when it determines that the loans/securities are uncollectible. This determination is reached after considering information such as the occurrence of significant changes in the borrower / issuer’s financial position such as the borrower / issuer can no longer pay the obligation, or that proceeds from collateral will not be sufficient to pay back the entire exposure.

3. Risk mitigation policiesCollateral:

The Group mainly employs collateral to mitigate credit risk. The principal collateral types for loans and advances are:

- Pledged deposits - Mortgages over real estate properties (land, commercial and residential properties)- Bank guarantees- Financial instruments (equities and debt securities)- Business other assets (such as inventories and accounts receivable)

Collateral generally is not held over loans and advances to banks, except when securities are held as part of reverse repurchase and securities borrowing activity. Collateral usually is not held against investment securities.

Other specific risk mitigation policies include:

Netting arrangements:

The Group sometimes further restricts its exposure to credit losses by entering into netting arrangements with counterparties. Netting arrangements reduce credit risk associated with favorable contracts to the extent that if a default occurs, all amounts with the counterparty are terminated and settled on a net basis.

4. Financial assets with credit risk exposure and related concentrationsa) Exposure to credit risk:

2014 2013

December 31,

Gross MaximumExposure

Gross MaximumExposure

Deposits with central banks 4,084,382,151 4,109,828,240

Deposits with banks and financial institutions 1,517,252,238 2,565,970,261

Financial assets at fair value through profit or loss 660,826,620 539,910,164

Reverse repurchase agreements and loans to banks 853,981,089 198,492,122

Loans and advances to customers 6,861,684,290 6,481,516,008

Loans and advances to related parties 292,442,624 284,439,172

Financial assets measured at amortized cost 7,039,209,841 4,846,685,228

Financial assets at other comprehensive income 401,102,794 357,564,228

Customers’ acceptance liabilities 184,768,794 84,024,058

Other assets 101,462,654 83,252,707

Total 21,997,113,095 19,551,682,188

Financial instruments with off-balance sheet risks 3,298,306,888 3,097,618,494

Fiduciary deposits and assets under management 1,674,474,177 1,345,728,549

Total 4,972,781,065 4,443,347,043

Total credit risk exposure 26,969,894,160 23,995,029,231

LBP’000 LBP’000


169168

Below are the details of the Group’s exposure to credit risk with respect to loans and advances to customers (excluding deferred penalties):

December 31, 2014

December 31, 2013

LBP’000

LBP’000

LBP’000

LBP’000

LBP’000

LBP’000

Gross Exposure Net of Unrealized

Interest

Gross Exposure Net of Unrealized

Interest

Allowance for Impairment

Allowance for Impairment

NetExposure

NetExposure

December 31, 2014

December 31, 2013

Fair Value of Collateral Received

Fair Value of Collateral Received

LBP’000

LBP’000

LBP’000

LBP’000

LBP’000

LBP’000

LBP’000

LBP’000

LBP’000

LBP’000

LBP’000

LBP’000

Regular loans and advances 6,963,317,895 (196,249,773) 6,767,068,122 559,008,736 2,799,560,779 267,065,914 113,076,968 401,032,177 4,139,744,574

Substandard loans 17,963,005 - 17,963,005 603,000 2,454,911 - - - 3,057,911

Bad and doubtful loans 194,450,944 (102,949,780) 91,501,164 186,892 101,607,620 - - 4,968,580 106,763,092

7,175,731,844 (299,199,553) 6,876,532,291 559,798,628 2,903,623,310 267,065,914 113,076,968 406,000,757 4,249,565,577

Performing loans and advances 6,624,308,288 (209,953,494) 6,414,354,794 501,216,756 2,736,100,083 498,507,713 97,352,887 382,299,818 4,215,477,257

Substandard loans 40,809,757 (742,880) 40,066,877 609,064 32,786,179 - - - 33,395,243

Bad and doubtful loans 113,093,849 (71,594,688) 41,499,161 165,948 56,090,746 31,007 - 5,654,929 61,942,630

6,778,211,894 (282,291,062) 6,495,920,832 501,991,768 2,824,977,008 498,538,720 97,352,887 387,954,747 4,310,815,130

Property

Property

EquitySecurities

EquitySecurities

DebtSecurities

DebtSecurities

PledgedFunds

PledgedFunds

Other

Other

Total

Total


171170

b) Concentration of financial assets by industry:

Balance sheet Exposure: Deposits with central banks 4,109,828,240 - - - - - - - - - - - 4,109,828,240

Deposits with banks and financial institutions - 2,565,903,603 - - - - - 66,658 - - - - 2,565,970,261

Financial assets at fair value throughprofit or loss 294,552,564 245,275,685 - - - - - - - - - 81,915 539,910,164

Reverse repurchase agreements andloans to banks - 198,492,122 - - - - - - - - - - 198,492,122

Loans and advances to customers - 733,028,598 224,771,272 993,396,920 495,693,313 245,511,860 843,203,092 2,358,919,212 296,087,785 9,278,618 127,723,815 153,901,523 6,481,516,008

Loans and advances to related parties - - 1,034,884 - - 135,675,000 6,517,789 140,704,822 - 506,677 - - 284,439,172

Financial assets at amortized cost 4,348,046,295 30,217,000 - - - - - - - - - 468,421,933 4,846,685,228

Financial assets at fair value through other comprehensive income - 63,331,015 - 14,395,117 - - - 274,689,979 1,992,019 - 1,172,044 1,984,054 357,564,228

Customers’ acceptance liability - - 11,630,469 10,639,364 39,906,957 - - - - - - 21,847,268 84,024,058

Other assets 1,507,500 16,308,582 - - - 31,478,986 65,382 - - - - 33,892,257 83,252,707

8,753,934,599 3,852,556,605 237,436,625 1,018,431,401 535,600,270 412,665,846 849,786,263 2,774,380,671 298,079,804 9,785,295 128,895,859 680,128,950 19,551,682,188

Off-Balance sheet Risks: Guarantees and standby letters of credit - 339,612,115 148,304,319 393,860,193 94,883,936 43,039,263 57,500,413 769,832,184 7,797,609 26,414 21,848,733 73,076,152 1,949,781,331

Documentary and commercial letters of credit - 9,389,045 17,984,745 58,588,556 125,923,496 1,456,102 105,339,397 141,051,444 - - - 32,631,772 492,364,557

Forward exchange contracts - 360,795,317 8,216,342 1,470,704 30,135,804 1,026,891 252,480,838 - - - - 1,346,710 655,472,606

2014

LBP’000

Sovereign

LBP’000

Banks andFinancial

Institutions

LBP’000

RetailTrade

ManufacturingIndustries

LBP’000

WholesaleTrade

LBP’000 LBP’000 LBP’000 LBP’000 LBP’000 LBP’000 LBP’000 LBP’000 LBP’000

2014

PrivateIndividuals

Real EstateDevelopers

and Contractors

Hotels and Furnished

Apartments and Restaurants

Educational, Media, Advrt, Legal, Acctg,

Consulting and Admin Srvcs Total

Balance sheet Exposure: Deposits with central banks 4,084,382,151 - - - - - - - - - - - 4,084,382,151

Deposits with banks andfinancial institutions - 1,516,395,133 - - - - - 857,105 - - - - 1,517,252,238

Financial assets at fair valuethrough profit or loss 466,508,792 168,625,699 - - - 23,261,884 - - 2,412,663 - - 17,582 660,826,620

Reverse repurchase agreementsand loans to banks - 853,981,089 - - - - - - - - - - 853,981,089

Loans and advances to customers - 612,656,671 176,167,388 1,048,281,007 606,751,467 244,904,296 1,082,631,329 2,313,673,442 295,845,902 98,053,593 89,980,248 292,738,947 6,861,684,290

Loans and advances to related parties - - 2,221,552 - - 135,675,000 15,145,836 139,400,236 - - - - 292,442,624

Financial assets at amortized cost 6,221,678,013 211,398,382 - - - - - - - - - 606,133,446 7,039,209,841

Financial assets at fair value throughother comprehensive income - 97,857,044 - 14,266,980 - - - 282,567,735 1,992,019 - 1,261,465 3,157,551 401,102,794

Customers’ acceptance liability - 1,648,913 9,581,101 9,573,769 129,599,930 8,619,636 - 18,697,763 - - - 7,047,682 184,768,794

Other assets 1,507,500 16,081,786 - - - 32,656,927 66,109 - - - - 51,150,332 101,462,654

10,774,076,456 3,478,644,717 187,970,041 1,072,121,756 736,351,397 445,117,743 1,097,843,274 2,755,196,281 300,250,584 98,053,593 91,241,713 960,245,540 21,997,113,095

Off-Balance sheet Risks: Guarantees and standby letters of credit - 310,709,943 71,594,462 453,668,438 113,291,022 48,217,669 133,348,134 783,941,416 6,377,309 28,652 16,391,411 113,988,031 2,051,556,487

Documentary and commercial letters of credit - 12,740,298 10,624,696 63,390,215 144,444,878 - 471,853 106,258,679 - - - 47,557,465 385,488,084

Forward exchange contracts - 608,308,153 8,706,907 2,146,239 46,196,313 191,496 185,726,258 6,363,730 - - - 3,623,221 861,262,317

Transport andStorage and

Communication

Public Health and Social Services Other

2013

LBP’000

Sovereign

LBP’000

Banks andFinancial

Institutions

LBP’000

RetailTrade

ManufacturingIndustries

LBP’000

WholesaleTrade

LBP’000 LBP’000 LBP’000 LBP’000 LBP’000 LBP’000 LBP’000 LBP’000 LBP’000

2013

PrivateIndividuals

Real EstateDevelopers

and Contractors

Hotels and Furnished

Apartments and Restaurants

Educational, Media, Advrt, Legal, Acctg,

Consulting and Admin Srvcs Total

Transport andStorage and

Communication

Public Health and Social Services Other


173172

c) Concentration of assets and liabilities by geographical area:

December 31, 2014

LBP’000 LBP’000 LBP’000

ASSETS

Cash and deposits withcentral banks 3,767,429,356 142,881,051 - 336,361,669 - 4,246,672,076

Deposits with banks andfinancial institutions 68,924,283 539,794,681 101,964,747 760,541,982 46,026,545 1,517,252,238

Financial assets at fairvalue through profit or loss 472,891,667 85,381,994 - 97,985,550 4,567,409 660,826,620

Reverse repurchase agreementsand loans to banks 796,239,465 4,169,123 178,177 53,394,324 - 853,981,089

Loans and advancesto customers 3,481,746,131 783,727,566 1,744,513 2,550,296,934 44,169,146 6,861,684,290

Loans and advances torelated parties 45,547,891 111,219,733 - 135,675,000 - 292,442,624

Investment securities 6,569,762,207 87,936,598 19,771,521 702,357,751 60,484,558 7,440,312,635

Customers’ acceptance liability 108,738,896 74,381,085 - 1,648,813 - 184,768,794

Investments in associatesand other investments 85,397,308 - - - - 85,397,308

Assets acquired insatisfaction of loans 417,223,597 - - 22,194,509 - 439,418,106

Goodwill 55,450,924 - - 121,464,103 - 176,915,027

Property and equipment 284,121,169 4,646,739 - 10,174,593 - 298,942,501

Other assets 136,118,501 7,279,416 - 41,887,225 1,631,734 186,916,876

Total Assets 16,289,591,395 1,841,417,986 123,658,958 4,833,982,453 156,879,392 23,245,530,184

LIABILITIES

Deposits from banks andfinancial institutions 230,140,226 23,756,698 1,517,159 394,063,196 - 649,477,279

Customers’ deposits at fairvalue through profit or loss - 40,694,503 - 278,430 - 40,972,933

Customers’ deposits atamortized cost 10,648,294,926 2,266,540,302 76,214,191 3,992,432,522 225,452,008 17,208,933,949

Related parties’ depositsat amortized cost 30,055,821 965,778,127 - 29,563,121 - 1,025,397,069

Acceptances payable 109,411,916 73,708,065 - 1,648,813 - 184,768,794

Borrowings from banks and financialinstitutions and central banks 784,768,655 - - - - 784,768,655

Other liabilities 158,631,958 9,967,924 1,318,151 56,834,391 7,511,635 234,264,059

Certificates of deposit - - - 752,063,550 - 752,063,550

Provisions 64,926,130 419,756 - 36,929,032 - 102,274,918

Total Liabilities 12,026,229,632 3,380,865,375 79,049,501 5,263,813,055 232,963,643 20,982,921,206

Lebanon EuropeNorth Africa Other

Middle East, Gulf & Africa Total

LBP’000 LBP’000 LBP’000

December 31, 2013

LBP’000 LBP’000 LBP’000

ASSETS

Cash and deposits withcentral banks 3,760,814,303 89,656,891 - 384,453,707 - 4,234,924,901

Deposits with banks andfinancial institutions 295,010,204 657,595,163 76,587,582 1,361,655,015 175,122,297 2,565,970,261

Financial assets at fair valuethrough profit or loss 305,084,628 104,739,165 7,473,850 122,239,767 372,754 539,910,164

Reverse repurchase agreementand loans to banks 15,483,961 8,051,460 13,296,410 161,660,291 - 198,492,122

Loans and advancesto customers 3,289,325,532 927,442,606 1,999,164 2,233,619,123 29,129,583 6,481,516,008

Loans and advances torelated parties 41,098,759 107,665,413 - 135,675,000 - 284,439,172

Investment securities 4,702,434,384 14,375,130 1,120,553 486,319,389 - 5,204,249,456

Customers’ acceptance liability 70,912,924 7,586,138 - 5,524,996 - 84,024,058

Investments in associatesand other investments 125,071,655 - - - - 125,071,655

Assets acquired insatisfaction of loans 416,577,513 - - 20,768,872 - 437,346,385

Goodwill 55,450,924 - - 124,779,121 - 180,230,045

Property and equipment 280,638,711 3,917,474 - 5,321,008 - 289,877,193

Other assets 107,883,710 1,534,267 920 52,010,723 1,539,675 162,969,295

Total Assets 13,465,787,208 1,922,563,707 100,478,479 5,094,027,012 206,164,309 20,789,020,715

LIABILITIES

Deposits from banks andfinancial institutions 85,581,268 59,036,441 - 437,076,955 - 581,694,664

Customers’ deposits at fairvalue through profit or loss 29,618,355 15,171,498 3,042,210 795,494 - 48,627,557

Customers’ depositsat amortized cost 10,315,293,993 2,171,672,731 131,386,558 2,618,662,824 289,683,637 15,526,699,743

Related parties’ depositsat amortized cost 85,234,203 590,465,538 27,053,611 366,186,226 14,977,080 1,083,916,658

Acceptances payable 6,703,622 3,648,813 45,282,019 28,315,859 73,745 84,024,058

Borrowings from banks and financialinstitutions and central banks 121,383,318 - - 271,517,788 - 392,901,106

Other liabilities 157,647,001 2,958,342 468,260 46,225,369 791,200 208,090,172

Certificates of deposit - - - 750,882,861 - 750,882,861

Provisions 63,757,861 300,651 - 15,390,640 - 79,449,152

Total liabilities 10,865,219,621 2,843,254,014 207,232,658 4,535,054,016 305,525,662 18,756,285,971

Lebanon EuropeNorth Africa Other

Middle East, Gulf & Africa Total

LBP’000 LBP’000 LBP’000


175174

d) Credit quality by class of financial assets

In managing its portfolio, the Group utilizes ratings and other measures and techniques which seek to take account of all aspects of perceived risk. Credit exposures classified as “High” quality are those where the ultimate risk of financial loss from the obligor’s failure to discharge its obligation is assessed to be low. These include facilities to corporate entities with financial condition, risk indicators and capacity to repay which are considered to be good to

LBP’000 LBP’000 LBP’000

High andStandard Grades Sovereign

Past due butnot Impaired

December 31, 2014

Neither past due nor impaired

excellent. Credit exposures classified as “Standard” quality comprise all other facilities whose payment performance is fully compliant with contractual conditions and which are not “impaired”. The ultimate risk of possible financial loss on “Standard” quality is assessed to be higher than that for the exposures classified within the “High” quality ratings. The credit quality of financial assets is managed by the Bank using internal credit ratings. The table below shows the credit quality by class of asset for all financial assets exposed to credit risk, based on the Group’s internal credit rating system:


Financial assets at amortized costsDeposits with central banks - 4,050,329,972 - - - - 34,052,179 4,084,382,151 Deposits with banks and financial institutions 1,514,363,783 - - - - - 2,888,455 1,517,252,238 Reverse repurchase agreements and loans to banks 852,825,042 - - - - - 1,156,047 853,981,089 Other Assets 99,955,154 1,507,500 - - - - - 101,462,654 2,467,143,979 4,051,837,472 - - - - 38,096,681 6,557,078,132 Financial assets designated at fair valuethrough profit or lossLebanese government bonds - 322,116,176 - - - - 3,535,393 325,651,569 Certificates of deposit issued by theCentral Bank of Lebanon - 137,108,251 - - - - 3,748,972 140,857,223 Debt securities issued by banks 15,576,846 - - - - - 43,480 15,620,326 Debt securities issued by companies 73,511,257 - - - - - 3,344,838 76,856,095 Credit linked notes issued by banks 77,107,116 - - - - - 800,444 77,907,560 Other foreign government bonds - 17,582 - - - - - 17,582 Quoted equity securities 778,299 - - - - - - 778,299 Unquoted equity securities 23,137,966 - - - - - - 23,137,966 190,111,484 459,242,009 - - - - 11,473,127 660,826,620 Loans and advancesLoans and advances to customers 6,881,104,339 - 29,589,743 283,457,084 (188,840,916) (196,249,773) 52,623,813 6,861,684,290 Loans and advances to related parties 288,756,382 - - - - - 3,686,242 292,442,624 7,169,860,721 - 29,589,743 283,457,084 (188,840,916) (196,249,773) 56,310,055 7,154,126,914 Financial investments-Financial assets at fairvalue through other comprehensive incomeQuoted equity securities 287,936,095 - - - - - - 287,936,095 Unquoted equity securities 66,878,912 - - - - - - 66,878,912 Convertible preferred shares issued by a Lebanese bank 791,437 - - - - - - 791,437 Cumulative preferred shares issued by a Lebanese bank 7,537,500 - - - - - - 7,537,500 Non-cumulative preferred shares issuedby a Lebanese bank 37,958,850 - - - - - - 37,958,850 401,102,794 - - - - - - 401,102,794 Financial investments-Financial assetsat amortized cost Lebanese Government bonds - 1,945,341,258 - - - - 26,250,055 1,971,591,313 Certificates of deposit issued by theCentral Bank of Lebanon - 4,111,605,454 - - - - 80,168,061 4,191,773,515 Certificates of deposit issued by banks 45,225,091 - - - - - 141,757 45,366,848 Debt securities issued by banks 139,817,049 - - - - - 536,632 140,353,681 Debt securities issued by companies 43,276,482 - - - - - 799,852 44,076,334 Structured Notes CLN 15,355,496 - - - - - 489,291 15,844,787 Other foreign government bonds - 629,830,942 - - - - 372,421 630,203,363 243,674,118 6,686,777,654 - - - - 108,758,069 7,039,209,841 10,471,893,096 11,197,857,135 29,589,743 283,457,084 (188,840,916) (196,249,773) 214,637,932 21,812,344,301

Allowance forImpairement

Collective Provision

AccruedInterest

Individually Impaired Total

December 31, 2014


177176

LBP’000 LBP’000 LBP’000

High andStandard Grades Sovereign

Past due butnot Impaired

December 31, 2013

Neither past due nor impaired


Financial assets at amortized costsDeposits with central banks - 4,067,804,359 - - - - 42,023,881 4,109,828,240 Deposits with banks and financial institutions 2,563,329,727 - - - - - 2,640,534 2,565,970,261 Reverse repurchase agreements and loans to banks 197,824,836 - - - - - 667,286 198,492,122 Other Assets 81,745,207 1,507,500 - 22,612,500 (22,612,500) - - 83,252,707 2,842,899,770 4,069,311,859 - 22,612,500 (22,612,500) - 45,331,701 6,957,543,330 Financial assets designated at fair valuethrough profit or lossLebanese government bonds - 232,087,924 - - - - 3,691,831 235,779,755 Certificates of deposit issued by theCentral Bank of Lebanon - 57,855,634 - - - - 902,104 58,757,738 Debt securities issued by banks 59,654,982 - - - - - 183,803 59,838,785 Debt securities issued by companies 70,364,760 - - - - - 3,301,655 73,666,415 Credit linked notes issued by banks 92,672,017 - - - - - 1,359,777 94,031,794 Other foreign government bonds - 81,915 - - - - - 81,915 Quoted equity securities 754,620 - - - - - - 754,620 Unquoted equity securities 16,999,142 - - - - - - 16,999,142 240,445,521 290,025,473 - - - - 9,439,170 539,910,164 Loans and advancesLoans and advances to customers 6,532,319,802 - 29,773,659 230,026,860 (162,865,646) (209,953,494) 62,214,827 6,481,516,008 Loans and advances to related parties 280,462,682 - - - - - 3,976,490 284,439,172 6,812,782,484 - 29,773,659 230,026,860 (162,865,646) (209,953,494) 66,191,317 6,765,955,180 Financial investments-Financial assets at fairvalue through other comprehensive incomeQuoted equity securities 280,186,491 - - - - - - 280,186,491 Unquoted equity securities 29,630,689 - - - - - - 29,630,689 Convertible preferred shares issued by a Lebanese bank 783,900 - - - - - - 783,900 Cumulative preferred shares issued by a Lebanese bank 7,537,500 - - - - - - 7,537,500 Non-cumulative preferred shares issuedby a Lebanese bank 39,425,648 - - - - - - 39,425,648 357,564,228 - - - - - - 357,564,228 Financial investments-Financial assetsat amortized cost Lebanese Government bonds - 2,513,180,666 - - - - 33,717,614 2,546,898,280 Certificates of deposit issued by theCentral Bank of Lebanon - 1,766,281,598 - - - - 34,866,417 1,801,148,015 Corporate debt securities 11,729,011 - - - - - 646,320 12,375,331Debt securities issued by banks 30,150,000 - - - - - 67,000 30,217,000Other foreign government bonds - 456,046,602 - - - - - 456,046,602 41,879,011 4,735,508,866 - - - - 69,297,351 4,846,685,228 10,295,571,014 9,094,846,198 29,773,659 252,639,360 (185,478,146) (209,953,494) 190,259,539 19,467,658,130

Allowance forImpairement

Collective Provision

AccruedInterest

Individually Impaired Total

December 31, 2013


179178

B – Liquidity RiskLiquidity risk is the risk that the Group will be unable to meet its net funding requirements. Liquidity risk can be caused by market disruptions or credit downgrades, which may cause certain sources of funding to dry up immediately.

1. Management of liquidity riskTo mitigate this risk, management has diversified funding sources, manages assets with liquidity in mind, maintaining an adequate balance of cash, cash equivalents and readily marketable securities and monitors future cash flows and liquidity on a daily basis. The Group also has committed lines of credit that it can access to meet liquidity needs.

Liquidity risk is the Group’s ability to ensure the availability of funding to meet commitments, both on-balance and off-balance sheet commitments, at a reasonable cost on time. The management of liquidity should not lead to threats to the Group’s solvency.

Liquidity risk arises when in case of crisis, refinancing may only be raised at higher market rates (funding risk), or assets may only be liquidated at a discount to market rates (market liquidity risk). Liquidity risk is also caused by mismatches in the maturities of assets and liabilities (uses and sources of funds).

LBP’000 LBP’000 LBP’000

Accounts withNo Maturity Up to 3 months 3 months to 1 year

December 31, 2014

LBP Base Accounts

In accordance with banking regulations issued by Central Bank of Lebanon, the Group maintains compulsory reserves with Central Bank of Lebanon of 25% and 15% of the weekly average demand and term customers’ deposits in Lebanese Pounds. The Group has the ability to raise additional funds through repurchase facilities available with Central Bank of Lebanon against Government debt securities.

The Group sets policies and procedures to ensure that its individual entities are in compliance with liquidity ratios imposed by the regulators in the countries in which each of these entities operates in addition to other internal limits and thresholds.

2. Exposure to liquidity riskThe tables below summarize the maturity profile of the Group’s assets, liabilities and equity. The contractual maturities of assets and liabilities have been determined on the basis of the remaining period at the balance sheet date to the contractual maturity date, and do not take account of the effective maturities as indicated by the Group’s deposit retention history and the availability of liquid funds. Management monitors the maturity profile to ensure that adequate liquidity is maintained.

Residual contractual maturities of assets and liabilities:

The tables below show the Group’s assets and liabilities in Lebanese Pounds and foreign currencies base accounts segregated by maturity:


ASSETSCash and deposits with central banks 340,703,447 17,989,838 - - - 1,227,846,846 6,455,005 1,592,995,136 Deposits with banks and financial institutions 9,482,584 499,176 49,534 - - - - 10,031,294 Financial assets at fair value through profit or loss - - - - 26,947,051 115,224,977 104,184,150 246,356,178 Reverse repurchase agreements and loans to banks - - - 1,972,044 4,198,718 - - 6,170,762 Loans and advances to customers (46,441,658) 32,215,524 26,686,029 58,313,687 52,275,758 171,109,413 404,058,774 698,217,527 Loans and advances to related parties - - - - - - 3,559,775 3,559,775 Investment securities 28,495,147 59,953,854 42,711,340 222,843,942 66,786,978 1,185,804,239 1,224,675,372 2,831,270,872 Investments in associates and other investments 7,542,115 - - - - - - 7,542,115 Assets acquired in satisfaction of loans 82,098,163 - - - - - - 82,098,163 Goodwill 23,068,898 - - - - - - 23,068,898 Property and equipment 282,488,316 - - - - - - 282,488,316 Other assets 46,680,673 - - 25,253,423 - - - 71,934,096 Total Assets 774,117,685 110,658,392 69,446,903 308,383,096 150,208,505 2,699,985,475 1,742,933,076 5,855,733,132

LIABILITIESDeposits from banks and financial institutions 5,817 107,130,998 49,534 - - - - 107,186,349 Customers’ deposits at amortized cost 42,511,957 3,624,588,896 366,833,244 39,754,017 16,237,022 13,483,660 27,729,109 4,131,137,905 Related parties’ deposits at amortized cost 673,784 178,944,750 1,516,807 - - - 1,588,136 182,723,477 Borrowings from banks and financial institutions and central banks - - - 91,478,926 55,900,729 - - 147,379,655 Other liabilities 52,291,076 - - - - 4,500,000 - 56,791,076 Provisions 46,775,142 - - - - - - 46,775,142 Total Liabilities 142,257,776 3,910,664,644 368,399,585 131,232,943 72,137,751 17,983,660 29,317,245 4,671,993,604

Maturity Gap 631,859,909 (3,800,006,252) (298,952,682) 177,150,153 78,070,754 2,682,001,815 1,713,615,831 1,183,739,528

3 to 5 years 5 to 10 years Over 10 years1 to 3 years Total

LBP Base Accounts

December 31, 2014


181180

LBP’000 LBP’000 LBP’000


December 31, 2013

LBP Base Accounts


ASSETSCash and deposits with central banks 301,565,279 - - - - 1,383,534,684 - 1,685,099,963Deposits with banks and financial institutions 2,809,343 2,191,424 3,363,167 - - - - 8,363,934Financial assets at fair value through profit or loss - - - - 26,401,926 105,042,938 205,582 131,650,446Reverse repurchase agreements and loans to banks - - - 908,374 1,970,805 5,038,460 - 7,917,639Loans and advances to customers (67,026,196) 29,615,632 24,084,937 42,593,634 57,874,038 120,800,781 330,920,871 538,863,697Investment securities 12,405,726 2,087,666 962,441 347,199,132 279,775,030 842,304,355 837,173,980 2,321,908,330Investments in associates and other investments 47,529,413 - - - - - - 47,529,413Assets acquired in satisfaction of loans 81,449,939 - - - - - - 81,449,939Goodwill 23,068,898 - - - - - - 23,068,898Property and equipment 278,425,829 - - - - - - 278,425,829Other assets 21,628,893 - - 23,954,705 - - - 45,583,598Total Assets 701,857,124 33,894,722 28,410,545 414,655,845 366,021,799 2,456,721,218 1,168,300,433 5,169,861,686

LIABILITIESDeposits from banks and financial institutions 5,537 102,251,529 - - - - - 102,257,066Customers’ deposits at amortized cost 17,848,567 3,222,583,608 358,032,775 22,400,584 8,081,302 16,380,893 30,650,091 3,675,977,820Related parties’ deposits at amortized cost 663,067 81,095,921 - - - - - 81,758,988Borrowings from banks and financial institutions and central banks - - - 91,471,057 29,912,261 - - 121,383,318Other liabilities 40,372,756 - 4,523 - - - - 40,377,279Provisions 54,572,023 - - - - - - 54,572,023Total Liabilities 113,461,950 3,405,931,058 358,037,298 113,871,641 37,993,563 16,380,893 30,650,091 4,076,326,494

Maturity Gap 588,395,174 (3,372,036,336) (329,626,753) 300,784,204 328,028,236 2,440,340,325 1,137,650,342 1,093,535,192


LBP Base Accounts

December 31, 2013


183182

LBP’000 LBP’000 LBP’000


December 31, 2014

F/Cy Base Accounts


ASSETSCash and deposits with central banks 821,949,191 244,822,753 146,701,616 754,577,820 377,238,170 - 308,387,390 2,653,676,940 Deposits with banks and financial institutions 227,309,854 968,706,757 311,107,378 96,955 - - - 1,507,220,944 Financial assets at fair value through profit or loss 24,821,427 - 101,034,980 15,134,145 51,017,707 57,534,372 164,927,811 414,470,442 Reverse repurchase agreements and loans to banks 4,440,909 742,247,880 89,775,202 11,346,336 - - - 847,810,327 Loans and advances to customers (48,184,547) 3,618,833,382 799,347,060 752,009,366 635,735,222 324,111,965 81,614,315 6,163,466,763 Loans and advances to related parties - 62,509,711 1,527,067 60,597,524 25,122,063 136,492,385 2,634,099 288,882,849 Investment securities 364,817,063 148,145,005 340,714,178 359,420,220 151,765,115 607,647,565 2,636,532,617 4,609,041,763 Customers’ acceptance liability - 154,734,874 28,063,652 1,970,268 - - - 184,768,794 Investments in associates and other investments 77,855,193 - - - - - - 77,855,193 Assets acquired in satisfaction of loans 357,319,943 - - - - - - 357,319,943 Goodwill 153,846,129 - - - - - - 153,846,129 Property and equipment 16,454,185 - - - - - - 16,454,185 Other assets 114,982,780 - - - - - - 114,982,780 Total Assets 2,115,612,127 5,940,000,362 1,818,271,133 1,955,152,634 1,240,878,277 1,125,786,287 3,194,096,232 17,389,797,052

LIABILITIESDeposits from banks and financial institutions 3,409,134 339,057,857 172,832,125 26,991,814 - - - 542,290,930 Customers’ deposits at fair value through profit or loss - 37,802,536 - - - 3,170,397 - 40,972,933 Customers’ deposits at amortized cost 565,718,457 10,583,095,249 1,253,700,730 510,845,530 113,683,509 46,339,426 4,413,143 13,077,796,044 Related parties’ deposits at amortized cost 21,710,998 747,738,773 3,063,118 70,160,703 - - - 842,673,592 Acceptances payable - 154,734,874 28,063,652 1,970,268 - - - 184,768,794 Borrowings from banks and financial institutionsand central banks - 395,427,913 30,887,712 63,590,572 18,244,715 100,512,412 28,725,676 637,389,000 Other liabilities 177,472,983 - - - - - - 177,472,983 Certificates of deposit - - - 752,063,550 - - - 752,063,550 Provisions 55,499,776 - - - - - - 55,499,776 Total Liabilities 823,811,352 12,257,857,202 1,488,547,337 1,425,622,437 131,928,224 150,022,235 33,138,819 16,310,927,602

Maturity Gap 1,291,800,775 (6,317,856,840) 329,723,796 529,530,197 1,108,950,053 975,764,052 3,160,957,413 1,078,869,450


F/Cy Base Accounts

December 31, 2014


185184

LBP’000 LBP’000 LBP’000


December 31, 2013

F/Cy Base Accounts


ASSETSCash and deposits with central banks 491,457,816 377,787,753 150,847,915 542,196,778 679,179,320 - 308,355,356 2,549,824,938Deposits with banks and financial institutions 183,933,575 2,235,523,660 137,919,560 229,532 - - - 2,557,606,327Financial assets at fair value through profit or loss 17,753,762 2,325,174 45,286,975 120,293,014 66,222,840 142,388,615 13,989,338 408,259,718Reverse repurchase agreements and loans to banks 13,258,956 16,847,473 155,279,376 5,188,678 - - - 190,574,483Loans and advances to customers (67,700,352) 3,689,539,119 538,642,515 934,683,283 374,466,928 396,692,278 76,328,540 5,942,652,311Loans and advances to related parties - 58,250,710 - 18,180 90,495,282 135,675,000 - 284,439,172Investment securities 345,158,502 176,849,771 254,202,884 230,225,872 140,859,361 295,286,163 1,439,758,573 2,882,341,126Customers’ acceptance liability - 66,536,698 17,487,360 - - - - 84,024,058Investments in associates and other investments 77,542,242 - - - - - - 77,542,242Assets acquired in satisfaction of loans 355,896,446 - - - - - - 355,896,446Goodwill 157,161,147 - - - - - - 157,161,147Property and equipment 11,451,364 - - - - - - 11,451,364Other assets 116,914,372 - - 471,325 - - - 117,385,697Total Assets 1,702,827,830 6,623,660,358 1,299,666,585 1,833,306,662 1,351,223,731 970,042,056 1,838,431,807 15,619,159,029

LIABILITIESDeposits from banks and financial institutions 12,680,637 384,937,854 54,057,489 27,761,618 - - - 479,437,598Customers’ deposits at fair value through profit or loss 7,925,057 37,687,500 - - - 3,015,000 - 48,627,557Customers’ deposits at amortized cost 429,890,270 9,558,304,347 981,264,124 665,384,475 165,516,491 45,477,173 4,885,043 11,850,721,923Related parties’ deposits at amortized cost 12,202,328 989,338,131 617,211 - - - - 1,002,157,670Acceptances payable - 66,536,698 17,487,360 - - - - 84,024,058Borrowings from banks and financial institutionsand central banks - 3,051,480 8,967,608 102,885,946 18,244,800 100,564,153 37,803,801 271,517,788Other liabilities 167,650,666 57,704 4,523 - - - - 167,712,893Certificates of deposit - - - - 750,882,861 - - 750,882,861Provisions 24,877,129 - - - - - - 24,877,129Total Liabilities 655,226,087 11,039,913,714 1,062,398,315 796,032,039 934,644,152 149,056,326 42,688,844 14,679,959,477

Maturity Gap 1,047,601,743 (4,416,253,356) 237,268,270 1,037,274,623 416,579,579 820,985,730 1,795,742,963 939,199,552


F/Cy Base Accounts

December 31, 2013


187186

C – Market RisksMarket risk is the risk that the fair value or future cash flows of the financial instruments will fluctuate due to changes in market variables such as interest rates, foreign exchange rates, and equity prices.

1. Management of market risksThe Group classifies exposures to market risk into either trading or banking (non-trading) book. The market risk for the trading book is managed and monitored using a combination of limits monitoring and Value at Risk (VAR) methodology. Market risk for non-trading book includes Price and Liquidity risks that are managed and monitored through internal limits, gap analysis, stress testing and sensitivity analysis.

a) Market Risk-Trading Book

Trading Book contains the Group’s positions in financial instruments which are held intentionally for short-term resale and/or with the intent of benefiting from actual or expected short-term price movements or to lock in arbitrage profits.

The Board has set limits for the acceptable level of risks in managing the trading book. The Group applies a VAR methodology to assess the market risk positions held and to estimate the potential economic loss based upon a number of parameters and assumptions for change in market conditions.

A VAR methodology estimates the potential negative change in market value of a portfolio at a given confidence level and over a specified time horizon. The Group uses simulation models to assess the possible changes in the market value of the trading book based on historical data. VAR models are usually designed to measure the market risk in a normal market environment and therefore the use of VAR has limitations as it is based on historical correlations and market price volatilities and assumes that the future movements will follow a statistical distribution.

The VAR that the Group measures is an estimate, using a confidence level of 95% of the potential loss that is not expected to be exceeded if the current market positions were to be held unchanged for one day. The use of 95% confidence level depicts that within a one-day horizon, losses exceeding VAR figure should occur, on average, not more than once every hundred days.

The VAR represents the risk of portfolios at the close of a business day, and it does not account for any losses that may occur beyond the defined confidence interval. The actual trading results however, may differ from the VAR calculations and, in particular, the calculation does not provide a meaningful indication of profits and losses in stressed market conditions.

b) Market Risk – Non-Trading Or Banking Book

Market risk on non-trading or banking positions mainly arises from the interest rate, foreign currency exposures, equity price changes and liquidity risk.

2. Exposure to Foreign Exchange riskForeign exchange risk is the risk that changes in foreign currency rates will affect the Group’s income or the value of its holdings of financial instruments. The objective of foreign currency risk management is to manage and control foreign currency risk exposure within acceptable parameters while optimizing the return on risk.

Foreign exchange exposure arises from normal banking activities, primarily from the receipt of deposits and the placement of funds. Future open positions in any currency are managed by means of forward foreign exchange contracts. It is the policy of the Group that it will, at all times, adhere to the limits laid down by the Central Bank as referred to below. It is not the Group’s intention to take open positions on its own account (proprietary trading) but rather to maintain square or near square positions in all currencies.

The Management sets limits on the level of exposure by currency and in the aggregate for both overnight and intra-day positions and hedging strategies, which are monitored daily and are in compliance with Central Bank of Lebanon rules and regulations.

Below is the carrying value of assets and liabilities segregated by major currencies to reflect the Group’s exposure to foreign currency exchange risk at year end:

December 31, 2014

LBP’000 LBP’000 LBP’000ASSETS Cash and deposits withcentral banks 1,592,995,136 2,229,404,999 305,463,998 1,638,869 117,169,074 4,246,672,076 Deposits with banks andfinancial institutions 10,031,294 1,191,534,115 107,630,348 44,941,507 163,114,974 1,517,252,238 Financial assets at fair valuethrough profit or loss 246,356,178 414,452,860 - - 17,582 660,826,620 Reverse repurchase agreementsand loans to banks 6,170,762 814,716,238 29,237,458 3,856,631 - 853,981,089 Loans and advancesto customers 698,217,527 4,121,705,568 384,073,957 47,001,239 1,610,685,999 6,861,684,290 Loans and advancesto related parties 3,559,775 243,801,976 5,745,822 - 39,335,051 292,442,624 Investment securities 2,831,270,872 3,978,274,342 26,636,615 - 604,130,806 7,440,312,635 Customers’ acceptance liability - 151,586,367 28,905,031 1,130,005 3,147,391 184,768,794 Investments in associatesand other investments 7,542,115 77,855,193 - - - 85,397,308 Assets acquired insatisfaction of loans 82,098,163 335,125,434 - - 22,194,509 439,418,106 Goodwill 23,068,898 114,266,860 - - 39,579,269 176,915,027 Property and equipment 282,488,316 1,396,318 252,239 - 14,805,628 298,942,501 Other assets 71,934,096 15,724,178 39,185,645 5,944,867 50,299,411 183,088,197 Total Assets 5,855,733,132 13,689,844,448 927,131,113 104,513,118 2,664,479,694 23,241,701,505

LIABILITIESDeposits from banks andfinancial institutions 107,186,349 137,017,326 19,422,462 445,726 385,405,416 649,477,279 Customers’ deposits at fairvalue through profit or loss - 40,641,661 331,272 - - 40,972,933 Customers’ deposits atamortized cost 4,131,137,905 10,380,600,215 1,022,838,156 90,341,380 1,584,016,293 17,208,933,949 Related parties’ depositsat amortized cost 182,723,477 745,144,238 36,757,570 158,401 60,613,383 1,025,397,069 Acceptances payable - 151,586,367 28,905,031 1,130,005 3,147,391 184,768,794 Borrowings from banks and financialinstitutions and central banks 147,379,655 637,389,000 - - - 784,768,655 Other liabilities 56,791,076 103,889,809 6,685,033 6,346,330 60,551,811 234,264,059 Certificates of deposit - 752,063,550 - - - 752,063,550 Provisions 46,775,142 19,042,612 189,945 947 36,266,272 102,274,918 Total Liabilities 4,671,993,604 12,967,374,778 1,115,129,469 98,422,789 2,130,000,566 20,982,921,206

Currencies to be delivered - (400,121,176) (85,608,498) (7,151,072) (365,121,497) (858,002,243) Currencies to be received - 349,460,103 308,543,270 1,641,639 201,617,305 861,262,317 Discount/Premium - (12,634) (7,551) - 588,790 568,605 - (50,673,707) 222,927,221 (5,509,433) (162,915,402) 3,828,679

Net on-balance sheetfinancial position 1,183,739,528 671,795,963 34,928,865 580,896 371,563,726 2,262,608,978

LBP GBPEURO OtherUSD Total

LBP’000 LBP’000 LBP’000


189188

December 31, 2013

LBP’000 LBP’000 LBP’000ASSETS Cash and deposits withcentral banks 1,685,099,963 2,119,862,052 228,991,238 3,672,276 197,299,372 4,234,924,901 Deposits with banks andfinancial institutions 8,363,934 1,515,825,144 778,979,549 40,186,864 222,614,770 2,565,970,261 Financial assets at fair valuethrough profit or loss 131,650,446 408,177,803 - - 81,915 539,910,164 Reverse repurchase agreementsand loans to banks 7,917,639 125,774,355 59,533,713 5,260,138 6,277 198,492,122 Loans and advancesto customers 538,863,697 4,138,094,682 446,606,339 25,016,173 1,332,935,117 6,481,516,008 Loans and advancesto related parties - 242,073,905 6,454,432 - 35,910,835 284,439,172 Investment securities 2,321,908,330 2,426,238,569 - - 456,102,557 5,204,249,456 Customers’ acceptance liability - 59,391,344 20,387,380 280,026 3,965,308 84,024,058 Investments in associatesand other investments 47,529,413 77,540,734 1,508 - - 125,071,655 Assets acquired insatisfaction of loans 81,449,939 335,127,574 - - 20,768,872 437,346,385 Goodwill 23,068,898 113,253,339 - - 43,907,808 180,230,045 Property and equipment 278,425,829 2,235,494 1,508 - 9,214,362 289,877,193 Other assets 45,583,598 92,289,508 932,934 183,743 23,507,731 162,497,514 Total Assets 5,169,861,686 11,655,884,503 1,541,888,601 74,599,220 2,346,314,924 20,788,548,934

LIABILITIESDeposits from banksand financial institutions 102,257,066 75,815,838 89,167,633 6,169,209 308,284,918 581,694,664 Customers’ deposits at fairvalue through profit or loss - 48,627,557 - - - 48,627,557 Customers’ deposits atamortized cost 3,675,977,820 9,161,680,762 1,414,534,009 68,099,537 1,206,407,615 15,526,699,743 Related parties’ depositsat amortized cost 81,758,988 887,827,444 8,449,847 2,230 105,878,149 1,083,916,658 Acceptances payable - 59,391,344 20,387,380 280,026 3,965,308 84,024,058 Borrowings from banks and financialinstitutions and central banks 121,383,318 271,517,788 - - - 392,901,106 Other liabilities 40,377,279 117,740,116 (974,339) (6,531) 45,122,359 202,258,884 Certificates of deposit - 750,882,861 - - - 750,882,861 Provisions 54,572,023 9,222,523 206,528 1,002 15,447,076 79,449,152 Total Liabilities 4,076,326,494 11,382,706,233 1,531,771,058 74,545,473 1,685,105,425 18,750,454,683

Currencies to be delivered - (137,172,177) (54,266,122) (12,800,601) (335,018,570) (539,257,470) Currencies to be received - 379,024,741 48,659,695 12,979,886 93,403,267 534,067,589 Discount/Premium - (45,567) (37,618) (1,628) (84,813) (169,626) - 241,806,997 (5,644,045) 177,657 (241,700,116) (5,359,507)

Net on-balance sheetfinancial position 1,093,535,192 514,985,267 4,473,498 231,404 419,509,383 2,032,734,744

LBP GBPEURO OtherUSD Total

LBP’000 LBP’000 LBP’000

3. Exposure to Interest rate riskInterest rate risk arises when there is a mismatch between positions, which are subject to interest rate adjustment within a specified period. The Group’s lending, funding and investment activities give rise to interest rate risk. The immediate impact of variation in interest rate is on the Group’s net interest income, while a long term impact is on the Group’s net worth since the economic value of the Group’s assets, liabilities and off-balance sheet exposures are affected.

The Group manages this risk by matching or hedging the repricing profile of assets and liabilities through risk management strategies.

The Board has established interest rate gap limits for stipulated periods.

The effective interest rate (effective yield) of a monetary financial instrument is the rate that, when used in a present value calculation, results in the carrying amount of the instrument. The rate is a historical rate for a fixed rate instrument carried at amortized cost and a current market rate for a floating rate instrument or an instrument carried at fair value.

Below is a summary of the Group’s interest rate gap position on assets and liabilities reflected at carrying amounts at year end segregated between floating and fixed interest rate earning or bearing and between Lebanese Pound and foreign currencies base accounts:


191190

December 31, 2014

Interest rate gap position in LBP:

LBP’000LBP’000

Up to 3 months

Non-interest Bearing

LBP’000

3 months to 1 year

LBP’000 LBP’000

1 to 3years

3 to 5years

5 to 10years

LBP’000

Over 10years

LBP’000

Floating Interest Rate


December 31, 2014

Over 3 months less than 1 year

1 to 3years

3 to 5years

5 to 10years

Over 10 years

Grand Total

ASSETSCash and depositswith central banks 340,703,447 17,989,838 - - - - - 17,989,838 - - - 1,227,846,846 6,455,005 1,234,301,851 1,592,995,136Deposits with banks andfinancial institutions 9,981,760 - - - - - - - 49,534 - - - - 49,534 10,031,294Financial assets at fair value through profit or loss - - - - - - - - - - 26,947,051 115,224,977 104,184,150 246,356,178 246,356,178Reverse repurchase agreementsand loans to banks - - - 1,972,044 4,198,718 - - 6,170,762 - - - - - - 6,170,762Loans and advancesto customers (46,441,658) 32,215,524 20,203,353 29,651,531 36,031,566 162,188,212 399,620,729 679,910,915 6,482,676 28,662,156 16,244,192 8,921,201 4,438,045 64,748,270 698,217,527Loans and advancesto related parties - - - - - - 3,559,775 3,559,775 - - - - - - 3,559,775Investment securities 28,495,147 59,953,854 - - - - - 59,953,854 42,711,340 222,843,942 66,786,977 1,185,804,239 1,224,675,373 2,742,821,871 2,831,270,872Customers’ acceptanceliability - - - - - - - - - - - - - - - Investments in associates and other investments 7,542,115 - - - - - - - - - - - - - 7,542,115Assets acquired insatisfaction of loans 82,098,163 - - - - - - - - - - - - - 82,098,163Goodwill 23,068,898 - - - - - - - - - - - - - 23,068,898Property and equipment 282,488,316 - - - - - - - - - - - - - 282,488,316Other assets 46,680,673 - - - - - - - - 25,253,423 - - - 25,253,423 71,934,096Total Assets 774,616,861 110,159,216 20,203,353 31,623,575 40,230,284 162,188,212 403,180,504 767,585,144 49,243,550 276,759,521 109,978,220 2,537,797,263 1,339,752,573 4,313,531,127 5,855,733,132

LIABILITIESDeposits from banks andfinancial institutions 5,817 107,130,998 - - - - - 107,130,998 49,534 - - - - 49,534 107,186,349Customers’ deposits at fairvalue through profit or loss - - - - - - - - - - - - - - - Customers’ deposits atamortized cost 42,511,957 3,624,588,896 325,331,282 33,089,155 4,038,842 10,802,006 21,797,052 4,019,647,233 41,501,962 6,664,862 12,198,180 2,681,654 5,932,057 68,978,715 4,131,137,905Related parties’ deposits atamortized cost 673,784 178,944,750 1,516,807 - - - 1,556,029 182,017,586 - - - - 32,107 32,107 182,723,477Acceptances payable - - - - - - - - - - - - - - - Borrowings from banks and financialinstitutions and central banks - - - - - - - - - 91,478,926 55,900,729 - - 147,379,655 147,379,655Other liabilities 52,291,076 - - - - 4,500,000 - 4,500,000 - - - - - - 56,791,076Certificates of deposit - - - - - - - - - - - - - - - Provisions 46,775,142 - - - - - - - - - - - - - 46,775,142Total Liabilities 142,257,776 3,910,664,644 326,848,089 33,089,155 4,038,842 15,302,006 23,353,081 4,313,295,817 41,551,496 98,143,788 68,098,909 2,681,654 5,964,164 216,440,011 4,671,993,604

Interest rate gap position 632,359,085 (3,800,505,428) (306,644,736) (1,465,580) 36,191,442 146,886,206 379,827,423 (3,545,710,673) 7,692,054 178,615,733 41,879,311 2,535,115,609 1,333,788,409 4,097,091,116 1,183,739,528

Total Total

Fixed Interest Rate


193192

December 31, 2013

Interest rate gap position in LBP:

LBP’000LBP’000

Up to 3 months


LBP’000

3 months to 1 year

LBP’000 LBP’000

1 to 3years

3 to 5years

5 to 10years

LBP’000

Over 10years

LBP’000



December 31, 2013


1 to 3years

3 to 5years

5 to 10years

Over 10 years

Grand Total

ASSETSCash and depositswith central banks 301,565,279 - - - - - - - - - - 1,383,534,684 - 1,383,534,684 1,685,099,963Deposits with banks andfinancial institutions 2,809,343 2,191,424 - - - - - 2,191,424 3,363,167 - - - - 3,363,167 8,363,934Financial assets at fair value through profit or loss - - - - - - - - - - 26,401,926 105,042,938 205,582 131,650,446 131,650,446Reverse repurchase agreementsand loans to banks - - - 908,374 1,970,805 5,038,460 - 7,917,639 - - - - - - 7,917,639Loans and advancesto customers (67,026,196) 29,615,632 17,914,587 20,523,409 39,484,716 111,859,577 281,163,648 500,561,569 6,170,350 22,070,225 18,389,322 8,941,204 49,757,223 105,328,324 538,863,697Investment securities 12,405,726 2,087,666 - - - - - 2,087,666 962,441 347,199,132 279,775,030 842,304,355 837,173,980 2,307,414,938 2,321,908,330Investments in associates andother investments 47,529,413 - - - - - - - - - - - - - 47,529,413Assets acquired insatisfaction of loans 81,449,939 - - - - - - - - - - - - - 81,449,939Goodwill 23,068,898 - - - - - - - - - - - - - 23,068,898Property and equipment 278,425,829 - - - - - - - - - - - - - 278,425,829Other assets 21,628,893 - - - - - - - - 23,954,705 - - - 23,954,705 45,583,598Total Assets 701,857,124 33,894,722 17,914,587 21,431,783 41,455,521 116,898,037 281,163,648 512,758,298 10,495,958 393,224,062 324,566,278 2,339,823,181 887,136,785 3,955,246,264 5,169,861,686

LIABILITIESDeposits from banks andfinancial institutions 5,537 102,251,529 - - - - - 102,251,529 - - - - - - 102,257,066Customers’ deposits atamortized cost 17,848,567 3,222,583,608 312,191,092 20,100,364 6,335,432 15,253,685 27,694,086 3,604,158,267 45,841,683 2,300,220 1,745,870 1,127,208 2,956,005 53,970,986 3,675,977,820Related parties’ deposits atamortized cost 663,067 81,095,921 - - - - - 81,095,921 - - - - - - 81,758,988Borrowings from banks and financialinstitutions and central banks - - - - - - - - - 91,471,057 29,912,261 - - 121,383,318 121,383,318Other liabilities 40,377,279 - - - - - - - - - - - - - 40,377,279Provisions 54,572,023 - - - - - - - - - - - - - 54,572,023Total Liabilities 113,466,473 3,405,931,058 312,191,092 20,100,364 6,335,432 15,253,685 27,694,086 3,787,505,717 45,841,683 93,771,277 31,658,131 1,127,208 2,956,005 175,354,304 4,076,326,494

Interest rate gap position 588,390,651 (3,372,036,336) (294,276,505) 1,331,419 35,120,089 101,644,352 253,469,562 (3,274,747,419) (35,345,725) 299,452,785 292,908,147 2,338,695,973 884,180,780 3,779,891,960 1,093,535,192

Total Total

Fixed Interest Rate


195194

December 31, 2014

Interest rate gap position in F/CY:

LBP’000LBP’000

Up to 3 months


LBP’000

3 months to 1 year

LBP’000 LBP’000

1 to 3years

3 to 5years

5 to 10years

LBP’000

Over 10years

LBP’000



December 31, 2014


1 to 3years

3 to 5years

5 to 10years

Over 10 years

Grand Total

ASSETSCash and depositswith central banks 821,949,191 244,822,753 146,701,616 754,577,820 377,238,170 - - 1,523,340,359 - - - - 308,387,390 308,387,390 2,653,676,940 Deposits with banks andfinancial institutions 227,403,125 968,613,486 19,815,510 - - - - 988,428,996 291,291,868 96,955 - - - 291,388,823 1,507,220,944 Financial assets at fair valuethrough profit or loss 24,821,427 - - - 7,547,236 - - 7,547,236 101,034,980 15,134,145 43,470,471 57,534,372 164,927,811 382,101,779 414,470,442 Reverse repurchase agreementsand loans to banks 4,440,909 742,247,880 66,871,296 11,346,336 - - - 820,465,512 22,903,906 - - - - 22,903,906 847,810,327Loans and advancesto customers (48,184,547) 3,618,833,382 420,276,434 318,752,193 365,805,676 300,771,168 77,342,484 5,101,781,337 379,070,626 433,257,173 269,929,546 23,340,797 4,271,831 1,109,869,973 6,163,466,763Loans and advancesto related parties - 62,509,711 1,507,500 60,565,661 25,026,888 817,385 2,634,099 153,061,244 19,567 31,863 95,175 135,675,000 - 135,821,605 288,882,849Investment securities 364,817,063 148,145,007 227,014,368 92,382,322 11,726,240 311,716,839 - 790,984,776 113,699,809 267,037,898 140,038,875 295,930,726 2,636,532,616 3,453,239,924 4,609,041,763Customers’ acceptanceliability 184,768,794 - - - - - - - - - - - - - 184,768,794Investments in associatesand other investments 77,855,193 - - - - - - - - - - - - - 77,855,193Assets acquired insatisfaction of loans 357,319,943 - - - - - - - - - - - - - 357,319,943Goodwill 153,846,129 - - - - - - - - - - - - - 153,846,129Property and equipment 16,454,185 - - - - - - - - - - - - - 16,454,185Other assets 114,982,780 - - - - - - - - - - - - - 114,982,780Total Assets 2,300,474,192 5,785,172,219 882,186,724 1,237,624,332 787,344,210 613,305,392 79,976,583 9,385,609,460 908,020,756 715,558,034 453,534,067 512,480,895 3,114,119,648 5,703,713,400 17,389,797,052

LIABILITIESDeposits from banks andfinancial institutions 3,409,133 339,057,857 17,210,620 - - - - 356,268,477 155,621,506 26,991,814 - - - 182,613,320 542,290,930 Customers’ deposits at fairvalue through profit or loss - 37,802,536 - - - - - 37,802,536 - - - 3,170,397 - 3,170,397 40,972,933 Customers’ depositsat amortized cost 565,718,457 10,583,095,249 831,912,184 248,194,192 90,304,499 44,694,389 1,987,980 11,800,188,493 421,788,546 262,651,338 23,379,010 1,645,037 2,425,163 711,889,094 13,077,796,044 Related parties’ depositsat amortized cost 21,710,998 747,738,773 3,063,118 70,160,703 - - - 820,962,594 - - - - - - 842,673,592 Acceptances payable 184,768,794 - - - - - - - - - - - - - 184,768,794 Borrowings from banks and financialInstitutions and central banks - 395,427,913 30,887,712 63,590,572 18,244,715 91,441,146 19,654,410 619,246,468 - - - 9,071,266 9,071,266 18,142,532 637,389,000 Other liabilities 177,472,983 - - - - - - - - - - - - - 177,472,983 Certificates of deposit - - - - - - - - - 752,063,550 - - - 752,063,550 752,063,550 Provisions 55,499,776 - - - - - - - - - - - - - 55,499,776 Total Liabilities 1,008,580,141 12,103,122,328 883,073,634 381,945,467 108,549,214 136,135,535 21,642,390 13,634,468,568 577,410,052 1,041,706,702 23,379,010 13,886,700 11,496,429 1,667,878,893 16,310,927,602

Interest rategap position 1,291,894,051 (6,317,950,109) (886,910) 855,678,865 678,794,996 477,169,857 58,334,193 (4,248,859,108) 330,610,704 (326,148,668) 430,155,057 498,594,195 3,102,623,219 4,035,834,507 1,078,869,450

Total Total

Fixed Interest Rate


197196

December 31, 2013

Interest rate gap position in F/CY:

LBP’000LBP’000

Up to 3 months


LBP’000

3 months to 1 year

LBP’000 LBP’000

1 to 3years

3 to 5years

5 to 10years

LBP’000

Over 10years

LBP’000



December 31, 2013


1 to 3years

3 to 5years

5 to 10years

Over 10 years

Grand Total

ASSETSCash and depositswith central banks 491,457,816 377,787,753 150,847,915 542,196,778 679,179,320 - - 1,750,011,766 - - - - 308,355,356 308,355,356 2,549,824,938Deposits with banks andfinancial institutions 313,591,047 2,108,762,086 - - - - - 2,108,762,086 135,253,194 - - - - 135,253,194 2,557,606,327Financial assets at fair valuethrough profit or loss 17,753,762 64,261 37,813,125 41,215,902 39,146,328 2,987,725 - 121,227,341 7,473,850 79,077,112 27,076,512 141,661,803 13,989,338 269,278,615 408,259,718Reverse repurchase agreementsand loans to banks 13,258,956 16,847,473 50,120,178 5,188,678 - - - 72,156,329 105,159,198 - - - - 105,159,198 190,574,483Loans and advancesto customers (67,700,351) 3,689,539,119 233,399,069 607,778,126 181,894,702 356,286,767 72,733,322 5,141,631,105 305,243,446 326,905,157 192,572,225 40,405,511 3,595,218 868,721,557 5,942,652,311Loans and advancesto related parties - 58,250,710 - 18,180 90,495,282 135,675,000 - 284,439,172 - - - - - - 284,439,172Investments securities 337,600,020 176,849,771 231,017,833 - - - - 407,867,604 23,185,051 237,784,354 140,859,361 295,286,163 1,439,758,573 2,136,873,502 2,882,341,126Customers’ liabilityunder acceptances 78,499,062 4,926,172 598,824 - - - - 5,524,996 - - - - - - 84,024,058Investments in associates 77,542,242 - - - - - - - - - - - - - 77,542,242Assets acquired insatisfaction of loans 355,896,446 - - - - - - - - - - - - - 355,896,446Goodwill 157,161,147 - - - - - - - - - - - - - 157,161,147Property and equipment 11,451,364 - - - - - - - - - - - - - 11,451,364Other assets 116,914,372 - - - - - - - - 471,325 - - - 471,325 117,385,697Total Assets 1,903,425,883 6,433,027,345 703,796,944 1,196,397,664 990,715,632 494,949,492 72,733,322 9,891,620,399 576,314,739 644,237,948 360,508,098 477,353,477 1,765,698,485 3,824,112,747 15,619,159,029

LIABILITIESDeposits from banks andfinancial institutions 12,680,637 384,937,854 - - - - - 384,937,854 54,057,489 27,761,618 - - - 81,819,107 479,437,598Customers’ deposits at fair valuethrough profit or loss 7,925,057 37,687,500 - - - - - 37,687,500 - - - 3,015,000 - 3,015,000 48,627,557Customers’ depositsat amortized cost 429,890,271 9,558,304,346 646,865,477 477,559,581 29,977,750 45,008,344 4,220,127 10,761,935,625 334,398,647 187,824,894 135,538,741 468,829 664,916 658,896,027 11,850,721,923Related parties’ depositsat amortized cost 12,202,328 989,338,131 617,211 - - - - 989,955,342 - - - - - - 1,002,157,670Liability under acceptances 78,499,062 4,926,172 598,824 - - - - 5,524,996 - - - - - - 84,024,058Borrowings from banks and financialinstitutions and central banks - 3,051,480 8,967,608 102,885,946 18,244,800 100,564,153 37,803,801 271,517,788 - - - - - - 271,517,788Other liabilities 167,659,711 53,181 - - - - - 53,181 - - - - - - 167,712,892Certificates of deposit - - - - - - - - - - 750,882,861 - - 750,882,861 750,882,861Provisions 24,877,130 - - - - - - - - - - - - - 24,877,130Total Liabilities 733,734,196 10,978,298,664 657,049,120 580,445,527 48,222,550 145,572,497 42,023,928 12,451,612,286 388,456,136 215,586,512 886,421,602 3,483,829 664,916 1,494,612,995 14,679,959,477

Interest rategap position 1,169,691,687 (4,545,271,319) 46,747,824 615,952,137 942,493,082 349,376,995 30,709,394 (2,559,991,887) 187,858,603 428,651,436 (525,913,504) 473,869,648 1,765,033,569 2,329,499,752 939,199,552

Total Total

Fixed Interest Rate


199198

The effect of a 50 basis point change in interest rates upwards on the earnings of the Group for the subsequent fiscal year for the statement of financial position structure and exposure would be a decrease of LBP50.7billion for the year 2014, a downwards movement will have an inverse effect.

The effect of a change in interest rate by 50 basis points on fair values of financial assets and liabilities stated at fair value as at December 31, 2014 would be in the amount of approximately LBP16.2billion and LBP85million, respectively summarized as follows:

49. FAIR VALUE OF FINANCIAL ASSETS AND LIABILITIES

For assets and liabilities that are recognised in the financial statements on a recurring basis, the Group determines whether transfers have occurred between Levels in the hierarchy by re-assessing categorization (based on the lowest level input that is significant to the fair value measurement as a whole) at the end of each reporting period.

For the purpose of fair value disclosures, the Group has determined classes of assets and liabilities on the basis of the nature, characteristics and risks of the asset or liability and the level of the fair value hierarchy as explained above.

The summary of the Group’s classification of each class of assets and liabilities and their fair values are as follows:

Financial assets at fair value through profit or loss 16,220,843

Customers’ deposits at fair value through profit or loss 84,674

LBP’000

Change in Fair Value

December 31, 2014

LBP’000 LBP’000 LBP’000

Assets measured at:

Fair value through profit or loss

Lebanese government bonds 8 325,651,569 - 325,651,569 - 325,651,569


the Central Bank of Lebanon 8 140,857,223 - 140,857,223 - 140,857,223

Debt securities issued by banks 8 15,620,326 15,619,663 - 663 15,620,326

Debt securities issued by companies 8 76,856,095 36,876,609 39,979,486 - 76,856,095

Credit linked notes issued by banks 8 77,907,560 - 77,907,560 - 77,907,560

Other foreign government bonds 8 17,582 17,582 - - 17,582

Quoted equity securities 8 778,299 778,299 - - 778,299

Unquoted equity securities 8 23,137,966 - 20,725,966 2,412,000 23,137,966

660,826,620 53,292,153 605,121,804 2,412,663 660,826,620

Notes Level 2Level 1 Level 3CarryingAmount Total

LBP’000 LBP’000 LBP’000

December 31, 2014

LBP’000 LBP’000 LBP’000

Fair value through other comprehensive income

Quoted equity securities 12 287,936,095 287,936,095 - - 287,936,095

Unquoted equity securities 12 66,878,912 - 66,878,912 - 66,878,912

Cumulative preferred shares

issued by a Lebanese bank 12 7,537,500 - - 7,537,500 7,537,500

Convertible preferred shares

issued by a Lebanese bank 12 791,437 791,437 - - 791,437

Non-cumulative preferred shares


401,102,794 288,727,532 66,878,912 45,496,350 401,102,794

Amortized cost:

Deposits with central banks 6 4,084,382,151 - 4,184,533,414 - 4,184,533,414

Deposits with banks and

financial institutions 7 1,517,252,238 - 1,517,252,238 - 1,517,252,238

Loans and advances to customers 10 6,861,684,290 - 6,868,239,627 - 6,868,239,627

Loans and advances to related parties 11 292,442,624 - 294,016,378 - 294,016,378

Lebanese Government bonds 12 1,971,591,313 - 2,024,854,397 - 2,024,854,397

Certificates of deposit issued by the

Central Bank of Lebanon 12 4,191,773,515 - 4,243,957,833 - 4,243,957,833

Certificates of deposit issued

by banks 12 45,366,848 - 45,366,848 - 45,366,848

Debt securities issued by banks 12 140,353,681 - 140,260,701 - 140,260,701

Debt securities issued by companies 12 44,076,334 - 43,933,052 - 43,933,052

Other foreign government bonds 12 630,203,363 570,432,021 59,416,756 - 629,848,777


Assets acquired in satisfaction

of loans 15 439,418,106 - 855,058,397 - 855,058,397

20,234,389,250 570,432,021 20,292,453,962 - 20,862,885,983

Liabilities measured at:


Customers’ deposits at fair value

through profit or loss 20 40,972,933 40,972,933 - - 40,972,933

40,972,933 40,972,933 - - 40,972,933

Amortized cost

Deposits from banks and

financial institutions 19 649,477,279 - 652,006,194 - 652,006,194

Customers’ deposits at

amortized cost 21 17,208,933,949 - 17,141,717,709 - 17,141,717,709

Borrowings from banks and financial

institutions and central banks 23 784,768,655 - 784,768,655 - 784,768,655

Certificates of deposit 24 752,063,550 - 766,535,550 - 766,535,550

19,395,243,433 - 19,345,028,108 - 19,345,028,108


LBP’000 LBP’000 LBP’000


201200

December 31, 2013

LBP’000 LBP’000 LBP’000

Assets measured at:


Lebanese government bonds 8 235,779,755 - 235,779,755 - 235,779,755


the Central Bank of Lebanon 8 58,757,738 - 58,757,738 - 58,757,738

Debt securities issued by banks 8 59,838,785 59,838,785 - - 59,838,785

Debt securities issued by companies 8 73,666,415 33,718,002 39,948,413 - 73,666,415


Other foreign government bonds 8 81,915 81,915 - - 81,915

Quoted equity securities 8 754,620 754,620 - - 754,620


539,910,164 94,393,322 445,516,842 - 539,910,164

Fair value through other comprehensive income

Quoted equity securities 12 280,186,491 280,186,491 - - 280,186,491


Cumulative preferred shares


Convertible preferred shares

issued by a Lebanese bank 12 783,900 783,900 - - 783,900

Non-cumulative preferred shares

issued by Lebanese banks 12 39,425,648 - - 39,425,648 39,425,648

357,564,228 280,970,391 29,630,689 46,963,148 357,564,228

Amortized cost

Deposits with central banks 6 4,109,828,240 - 4,191,724,107 - 4,191,724,107

Deposits with banks and financial

institutions 7 2,565,970,261 - 2,565,993,131 - 2,565,993,131

Loans and advances to customers 10 6,481,516,008 - 6,536,599,319 - 6,536,599,319

Lebanese Government bonds 12 2,546,898,280 - 2,567,507,218 - 2,567,507,218

Certificates of deposit issued by the

Central Bank of Lebanon 12 1,801,148,015 - 1,837,731,044 - 1,837,731,044

Debt securities issued by banks 12 30,217,000 - 30,217,000 - 30,217,000

Debt securities issued by companies 12 12,375,331 - 13,021,651 - 13,021,651

Other foreign government bonds 12 456,046,602 425,776,347 - - 425,776,347

Assets acquired in satisfaction

of loans 15 437,346,385 - 857,456,509 - 857,456,509

18,441,346,122 425,776,347 18,600,249,979 - 19,026,026,326

Liabilities measured at:


Customers’ deposits at fair value

through profit or loss 20 48,627,557 48,627,557 - - 48,627,557

48,627,557 48,627,557 - - 48,627,557


LBP’000 LBP’000 LBP’000

December 31, 2013

LBP’000 LBP’000 LBP’000


LBP’000 LBP’000 LBP’000

Amortized cost

Deposits from banks and

financial institutions 19 581,694,664 - 582,365,754 - 582,365,754

Customers’ deposits at

amortized cost 21 15,526,699,743 - 15,477,923,533 - 15,477,923,533

Borrowings from banks and financial

institutions and central banks 23 392,901,106 - 393,425,852 - 393,425,852

Certificates of deposit 24 750,882,861 - 746,511,111 - 746,511,111

17,252,178,374 - 17,200,226,250 - 17,200,226,250

Valuation techniques, significant unobservable inputs, and sensitivity of the input to fair value

The following table gives information about how the fair values of assets and liabilities, are determined (Level 2 and Level 3 fair values) and significant unobservable inputs used:

December 31, 2014

Date of Valuation Valuation Technique and Key Inputs

Assets

At fair value through profit or loss:

Lebanese government bonds December 31, 2014 DCF at a discount rate determined

based on the yield curve applicable to Lebanese treasury bonds.

Certificates of deposit issued by DCF at a discount rate determined basedthe Central Bank of Lebanon December 31, 2014 on the yield curve applicable to Lebanese treasury bonds, adjusted for illiquidity.

Debt securities issued by companies December 31, 2014 Based on net asset value of recent transactions.

Credit linked notes issued by banks December 31, 2014 DCF at a discount rate determined

based on CDS, leverage (if any) and cost of unwinding the transaction.

Unquoted equity securities December 31, 2014 Not valued.

At fair value through other comprehensive income:


Cumulative preferred shares issued December 31, 2014

Management estimate based onby a Lebanese Bank unobservable input related to market volatility and liquidity.

Non-cumulative preferred shares issued Management estimate based onby Lebanese banks December 31, 2014 unobservable input related to market volatility and liquidity.

At amortized cost:

Deposits with central banks December 31, 2014 DCF at a discount rate determined based

on the Central Bank primary yield curve and Government bond yield curve.


203202

December 31, 2014


Deposits with banks and financial institutions December 31, 2014 DCF at a discount rate determined at the rate of a one year interest rate swap.

Loans and advances to customers December 31, 2014 DCF at the commercial rate for retail loans and at the rate of a one year interest rate swap.

Loans and advances to related parties December 31, 2014 DCF at the commercial rate for retail loans and at the rate of a one year interest rate swap.

Lebanese Government bonds December 31, 2014 DCF at a discount rate determined based on the yield curve applicable to Lebanese treasury bonds.

Certificates of deposit issued by the December 31, 2014 DCF at a discount rate determined based on theCentral Bank of Lebanon yield curve applicable to Lebanese treasury bonds.

Certificates of deposit issued by banks December 31, 2014 DCF at a discount rate determined based on the market rate of similar securities.

Debt securities issued by banks December 31, 2014 DCF at a discount rate determined based on the market rate of similar bonds.

Debt securities issued by companies December 31, 2014 DCF using observable input.

Other foreign government bonds December 31, 2014 DCF at a discount rate determined based on the yield curve applicable to treasury bonds.

Credit linked notes issued by banks December 31, 2014 DCF at a discount rate determined.

Assets acquired in satisfaction of loans December 31, 2014 Valuation made by the Bank’s internal experts.

Liabilities

At amortized cost:

Deposits from banks and financial institutions December 31, 2014 DCF at a discount rate determined at the rate of a one year interest rate swap.

Customers’ deposits at amortized cost December 31, 2014 DCF at a discount rate determined at the rate of a one year interest rate swap.

Borrowings from banks and financial December 31, 2014 DCF at a discount rate determined at the institutions and central banks rate of a one year interest rate swap.

DCF at a discount rate determined basedCertificates of deposit December 31, 2014 on the yield curve applicable to Lebanese Government bonds.

December 31, 2013


Assets

At fair value through profit or loss:

Lebanese government bonds December 31, 2013 DCF at a discount rate determined based on the yield curve applicable to Lebanese treasury bonds.

Certificates of deposit issued by the December 31, 2013 DCF at a discount rate determined basedCentral Bank of Lebanon on the yield curve applicable to Lebanese treasury bonds, adjusted for illiquidity.

Debt securities issued by companies December 31, 2013 Based on net asset value or recent transactions.

DCF at a discount rate determined basedCredit linked notes issued by banks December 31, 2013 on CDS,leverage (if any) and cost of unwinding the transaction.


December 31, 2013


There have been no transfers between Level 1 and Level 2 during the period.

The directors consider that the carrying amounts of loans to banks and reverse repurchase agreements, loans and advances to related parties, customers’ acceptance liability, other assets, related parties’ deposits at amortized cost, acceptances payable and other liabilities approximate their fair values due to the short-term maturities of these instruments.

50. APPROVAL OF THE FINANCIAL STATEMENTS

The financial statements for the year ended December 31, 2014 were approved by the Board of Directors in its meeting held on April 13, 2015.

At fair value through other comprehensive income:


Cumulative preferred shares issued by December 31, 2013 Management estimate based on unobservablea Lebanese Bank input related to market volatility and liquidity.

Non-cumulative preferred shares issued December 31, 2013 Management estimate based on unobservableby Lebanese banks input related to market volatility and liquidity.

At amortized cost:

DCF at a discount rate determined basedDeposits with central banks December 31, 2013 on the Central Bank primary yield curve and Government bond yield curve.

Deposits with banks and financial institutions December 31, 2013 DCF at a discount rate determined at the rate of a one year interest rate swap.

Loans and advances to customers December 31, 2013 DCF at the commercial rate for retail loans and at the rate of a one year interest rate swap.

Lebanese Government bonds December 31, 2013 DCF at a discount rate determined based on the yield curve applicable to Lebanese treasury bonds.

Certificates of deposit issued by the December 31, 2013 DCF at a discount rate determined based on theCentral Bank of Lebanon yield curve applicable to Lebanese treasury bonds.

Debt securities issued by banks December 31, 2013 DCF at a discount rate determined based on the market rate of similar bonds.

Debts securities issued by companies December 31, 2013 DCF using observable input.

Assets acquired in satisfaction of loans December 31, 2013 Valuation made by the Bank’s internal experts.

Liabilities

At amortized cost:

Deposits from banks and financial institutions December 31, 2013 DCF at a discount rate determined at the rate of a one year interest rate swap.

Customers’ deposits at amortized cost December 31, 2013 DCF at a discount rate determined at the rate of a one year interest rate swap.

Borrowings from banks and financial December 31, 2013 DCF at a discount rate determined at theinstitutions and central banks rate of a one year interest rate swap.

DCF at a discount rate determined basedCertificates of deposit December 31, 2013 on the yield curve applicable to Lebanese Government bonds.

09 | CORPORATE DIRECTORY CORRESPONDENT BANKS

206 207CORPORATE DIRECTORY

09 | CORPORATE DIRECTORY

MAIN BRANCHClemenceau Branch Bankmed Center, 482 Clemenceau Street Tel. & Fax: (961-1) 373937Branch Manager: Mr. Sobhi Hammoud

REGION IArea Managers: Mr. Anis Younis, Mrs. Nahed Malki, Mr. Mohamad Tabsh

Aley BranchMain Road, Anwar David Labib Shehayeb Bldg.Tel. & Fax: (961-5) 558111, 558012/3/4; (961-71) 160100Branch Manager: Mr. Rabih Khaddaj

Bakaata BranchJdeidet El-Shouf, Bakaata District, Fatayri Bldg.Tel. & Fax: (961-5) 501888, 501861/2/3; (961-3) 760808Branch Manager: Mr. Wajdi AbdulSamad

Beirut Souks Branch Beirut Souks, Weygand Street, Ibn Iraq Square, Jewelry Souk Tel. & Fax: (961-1) 992062/3/4Branch Manager: Mrs. Nahed Malki

Fosh BranchFosh Street, Beirut Central DistrictTel. & Fax: (961-1) 976444, 999113; (961-3) 922296, 010788Branch Manager: Mrs. Nahed Malki

Khalde Branch Salem Center, Main RoadTel. & Fax: (961-5) 800703/4/5/6; (961-3) 760004 Branch Manager: Mrs. Nada Abou Fakher

Msaitbe BranchAl Hana Bldg., Mar Elias StreetTel. & Fax: (961-1) 819202, 314655, 314658, 314678; (961-3) 760011Branch Manager: Mrs. Dania Idriss

Phoenicia BranchPhoenix Tower, Ain El-MreissehTel. & Fax: (961-1) 369069, 366181; (961-3) 762728Branch Manager: Mr. Anis Younis

Saifi BranchSaifi, Intersection of Gouraud-Damascus Street, Saifi Village IITel. & Fax: (961-1) 974975, 983533, 983688; (961- 76) 095950Branch Manager: Mr. Bilal Cheikh

Tarik Jdeede BranchMalaab Baladi SquareTel. & Fax: (961-1) 303444, 304861/3, 304871; (961-3) 035251Branch Manager: Mr. Jamal Sakakini

Zarif BranchKaaki Center, Al-Jazaer Street, Zarif Area, Beirut Tel. & Fax: (961-1) 361802/7/9/12; (961-3) 094724Branch Manager: Mr. Mohamad Tabsh

REGION IIArea Managers: Mr. Souheil Droubi, Mrs. Nada Kambriss, Mrs. Nada Jisr

Airport BranchMEA PremisesTel. & Fax: (961-1) 629360/1/2; (961-3) 760026Branch Manager: Mr. Mohamad Khalil

Barbir BranchChehab Bldg., Intersection of Jamal AbdulNaser Mosque, Corniche Mazraa Tel. & Fax: (961-1) 703320, 307223, 307348; (961-3) 094805Branch Manager: Mrs. Zeina Chehab

Bliss BranchRas Beirut-Bliss StreetTel. & Fax: (961-1) 364716, 364719, 364721, 377334; (961-70) 665300Branch Manager: Mr. Samer Sabeh

Chiah Branch Hadi Nasrallah Blvd., Ismail Bldg., ChiahTel. & Fax: (961-1) 551999, 552999, 554999; (961-3) 794945Branch Manager: Mr. Samer Haidar

Hamra BranchAl Nahar Bldg., Banque Du Liban StreetTel. & Fax: (961-1) 344677, 353146/7/8/9; (961-3) 760007Branch Manager: Mrs. Rana Mehio

Jnah BranchJnah, Nkoula Sorsok Street, Karly Bldg.Tel. & Fax: (961-1) 853444/5/6/7; (961-3) 760020Branch Manager: Mr. Souheil Droubi

Justinian BranchJustinian Center, Justinian Street, Sanayeh Tel. (961-1) 354866; (961-3) 094718; Fax: (961-1) 354474 Branch Manager: Mr. Maher Ladki

Koraytem BranchReda Mroue Bldg., Mme. Curie StreetTel. & Fax: (961-1) 780780, 803160/1/2; (961-3) 760064Branch Manager: Mrs. Nada Kambriss

Makdessi BranchDiab Bldg., Makdessi Street, Ras BeirutTel. & Fax: (961-1) 346934, 344395, 345146, 346323; (961-3) 288357Branch Manager: Mrs. Randa Bazazo

Mazraa BranchEtoile 2000 Center, Corniche El-MazraaTel. & Fax: (961-1) 818166/7/8, 819197/8; (961-3) 760017Branch Manager: Mrs. Reem Zahabi

Movenpick BranchMovenpick Hotel, Rawche Tel. & Fax: (961-1) 799880/1Officer in Charge: Ms. Zeinab Itani

Rafik Hariri International Airport Branch Rafik Hariri International Airport-BeirutTel. & Fax: (961-1) 628828, 628622/3/4; (961-71) 171151Branch Manager: Mr. Hassan Barbour

208 209

Raouche BranchSalah Shamma Bldg., Shouran StreetTel. & Fax: (961-1) 862696, 808563, 808610/1; (961-3) 760002Branch Manager: Mrs. Alia Hammoud

Sodeco BranchSodeco SquareTel. & Fax: (961-1) 611444, 397762, 397801, 397855, 397879; (961-3) 760027Branch Manager: Mr. Talal Khaled

Verdun BranchAl-Shuaa Bldg., Rashid Karame AvenueTel. & Fax: (961-1) 866925/6/7/8/9; (961-3) 760063Branch Manager: Mrs. Nada Jisr

REGION IIIArea Managers: Mr. Georges Hallak, Mr. Assad Khoury, Mr. Robert Prince

Ashrafieh Branch Hadife Bldg., Charles Malek AvenueTel. & Fax: (961-1) 200135/6/7/8/9/40; (961-3) 760001Branch Manager: Mr. Georges Hallak

Burj Hammoud BranchGold & Jewelry Trade Center, 52 Abboud Street Tel. & Fax: (961-1) 244000, 242608/9/10; (961-3) 760065Branch Manager: Mr. Assad Khoury

Dora Branch Banking Center Bldg., Dora HighwayTel. & Fax: (961-1) 257958/60/61, 240990; (961-3) 095098Branch Manager: Mr. Kalim Ghazi

Hazmieh BranchTufenkjian Center, Brazilia StreetTel & Fax: (961-5) 450186/7, 452649, 452634; (961-3) 652402Branch Manager: Mr. Robert Prince

REGION IVArea Managers: Mr. Edgard AbdulSater, Mr. Elias Bou Saba, Mr. Elias Mady

Broumana Branch Rizk PlazaTel. & Fax: (961-4) 860995/6/7/9; (961-3) 760023Branch Manager: Mrs. Liliane Abou Khalil

Elissar BranchElissar, Mazraat Yashouh, Bekfaya Main Road, Gerges Aoun Bldg.Tel. & Fax: (961-4) 922199, 911327, 911534, 911573; (961-70) 445455Branch Manager: Mrs. Joelle Chamoun

Furn El-ChebbakAtallah Freij Bldg., Damascus RoadTel. & Fax: (961-1) 291618/9/21, 292076; (961-3) 760009Branch Manager: Mr. Joseph Edde

Ghazir BranchCenter Ghazir 3522, Main Road, Ghazir Highway Tel. & Fax: (961-9) 856688, 853332/4/6; (961-3) 384383Branch Manager: Mrs Rindala Naddaf

Jal El-Dib BranchJal El-Dib Highway, Abi Khalil Bldg.Tel. & Fax: (961-4) 711222, 718645/6/7; (961-3) 760010Branch Manager: Mr. Nassib Abou Jawdeh

Jdeideh Branch Zainoun & Saab Bldg., Nahr El-MaoutTel. & Fax: (961-1) 892055/9, 891566, 879209; (961-3) 760006Branch Manager: Mr. Elias Saab

Jounieh BranchHaret Sakher, Assaf Bldg., Facing Fouad Chehab StadiumTel. & Fax: (961-9) 645745, 835480, (961-76) 983963Branch Manager: Mr. Elias Bou Saba

Mansourieh BranchLatifa Center, New Highway, Mansourieh Main RoadTel. & Fax: (961-4) 534174/5, 531956; (961-3) 099133Branch Manager: Mrs. Rola Haddad

Sin El-Fil BranchMashakah Bldg., Saint Rita Street, Sin El-FilTel. & Fax: (961-1) 482666, 492733/6; (961-3) 099144Branch Manager: Mrs. Joelle Nassar

Zalka BranchBreezvale Center, Main RoadTel. & Fax: (961-1) 884570/1/2, 884569; (961-3) 760021Branch Manager: Mr. Edgard AbdulSater

Zouk Mkayel BranchAbi Chaker Bldg., Zouk Main RoadTel. & Fax: (961-9) 211116, 211073/5/6; (961-3) 760003Branch Manager: Mr. Challita Salemeh

Zouk Mosbeh BranchZouk Mosbeh, Al-Masayef Main Road, El-Centro Bldg. Tel. & Fax: (961-9) 219632, 218631/2/4; (961-70) 480853Branch Manager: Mr. Georges Nasr

REGION VArea Managers: Mr. Samer Raad, Mr. Antoine Eid

Al Mina BranchAl-Bawaba Street, Al-Shiraa Square, Jabado Bldg., TripoliTel. & Fax: (961-6) 226700/1/2/3/4; (961-70) 867726Officer in Charge: Mr. Wassim Moubayed

Daher El-Ain BranchTripoli-Koura Main Road, Daher El-Ain, Al-Ghanem Bldg.Tel. & Fax: (961-6) 418061, 418096, 418062; (961-76) 886556Branch Manager: Mr. Jad Chalhoub

Halba BranchMain Road, Abdallah Bldg., HalbaTel & Fax: (961-6) 694871/2/3; (961-70) 445005Branch Manager: Mr. Samer Haddara

Jbeil BranchCordahi & Matta Center, Jbeil Tel. & Fax: (961-9) 540195, 546542/3; (961-3) 760014Branch Manager: Mr. Antoine Eid

Kfarsaroun BranchShammas Bldg., Cedars StreetTel. & Fax: (961-6) 950988, 950957, 952098; (961-3) 099122Branch Manager: Mrs. Rabab Fadel

Meryata BranchGhourani-Abdelrahman Bldg., Ardeh Main Road, MeryataTel. & Fax: (961-6) 255254, 255442, (961-3) 996922Officer in Charge: Mr. Samer AbdelRahman

CORPORATE DIRECTORY

210 211

Minieh BranchInternational Highway, Zreika Bldg., MiniehTel. & Fax: (961-6) 464901/2/3/4; (961-70) 480823Branch Manager: Mr. Bashar Kaja

Tripoli BranchAl Hana Bldg., Jemmayzat StreetTel. & Fax: (961-6) 440443/7, 442093; (961-3) 760013Branch Manager: Mr. Samer Raad

REGION VIRegional Manager: Mr. Mazen SammakArea Manager: Mr. Marwan Hachem

Saida BranchRiad Chehab Bldg., Riad Solh StreetTel. & Fax: (961-7) 721788, 735119/21; (961-3) 760012Branch Manager: Mrs. Zahera Shamseddine

Saida Eastern Boulevard BranchAl Misbah Bldg., Jizzine Street, SaidaTel. & Fax: (961-7) 725212, 728744; (961-3) 094868 Branch Manager: Mrs. Sabah Teriaki Shehim BranchToufic Owaidat Bldg., Shreifeh District, Shehim Tel. & Fax: (961-7) 241005/6/7; (961-3) 094873 Branch Manager: Mr. Imad AbdulRehim

Wastani BranchAl-Wastani Roundabout, Dr. Nazih Bizri Blvd., Bankmed Bldg. Tel. & Fax: (961-7) 750362/3/4; (961-70) 867789Branch Manager: Mr. AbdulHamid Awwad

Majdelyoun BranchSaida-Jizzine Main Road, Before Zaydanieh Junction, Bankmed Bldg.Tel. & Fax: (961-7) 727102/3

REGION VIIRegional Manager: Mr. Ahmad Hammoud

Chtaura BranchAl-Jinan Bldg., Main RoadTel. & Fax: (961-8) 542491, 542670, 543145/6/7; (961-3) 760019Branch Manager: Mr. Mohamad Smeily

Zahle BranchRashid Salim Khoury Bldg., Hoshe Zaraina Blvd.Tel. & Fax: (961-8) 802487, 805777, 812389, 810194, 818500; (961-3) 760015Branch Manager: Mrs. Samia Ghorra

Jib Jinnine BranchAl-Hana Bldg., Jib Jinnine, West BekaaTel. & Fax: (961-8) 661503/4/5/6; (961-3) 760025Branch Manager: Mr. Ibrahim Merhi

REGION VIIIRegional Manager: Mr. Jihad Bazzi

Tyre BranchSaab & Fardoun Bldg., Banque Du Liban StreetTel. & Fax: (961-7) 351251, 351151/2; (961-3) 332243Branch Manager: Mr. Jihad Bazzi

Nabatieh BranchMain Road, Al-Bayad Quarter, Daher CenterTel. & Fax: (961-7) 767936/7/8/9; (961-71) 177187Branch Manager: Mrs. Nada Khalifeh

Sineek BranchBoulevard Maarouf Saad, Bankmed Bldg.Tel. & Fax: (961-7) 728451/2/7,728521; (961-70) 867716Branch Manager: Mrs. Sahar Bizri

CYPRUSLimassol9 Constantinou Paparigopoulou Street, Frema House, CY-3106 Limassol, CyprusP.O.Box 54232, CY-3722 Limassol, CyprusTel: (357) 25817152/3, 25817157, 25817178/9 Mobile: (357) 99 642352Fax: (357) 25372711Branch Manager: Mr. Georges Abi ChamounE-mail: [email protected]

IRAQ

Erbil, IraqTel: (964) 662101930/40/50/60 - 7508114443/6/7/8/9Mobile: (964) 7508445462Deputy Country Manager: Mr. Jean AbboudE-mail: [email protected]

BaghdadSabeh Kousour Street Bankmed Bldg., Al Karrada, Karrada Dakhil, Baghdad, IraqTel: (964) 7704849773/4 - 7809174862/3Mobile: (964) 7821001402 Branch Manager: Mr. Dureid SaadE-mail: [email protected]

BasraJuly 14th Crossing, Saadi Street Basra, IraqMobile: (964) 7714969669Branch Manager: Mr. Camille S. BedranE-mail: [email protected]

ErbilBakhtiari Street Bankmed Bldg., Bakhtiari Area, Erbil, IraqTel. (964) 662101930 / 40 / 50 / 60 - 7508114443 / 6 / 7 / 8 / 9Mobile: (964) 7508370333Branch Manager: Mr. Walid MetlejE-mail: [email protected]

United Arab Emirates*Bankmed-Dubai International Financial Center Currency House, Tower 2, Level 28, Unit 2801P.O. Box: 506933-DIFC Dubai, UAETel: (971-4) 3889808 Fax: (971-4) 3889809Senior Executive Officer: Mr. Chafic Mourad

MedSecurities-Dubai International Financial CenterCurrency House, Tower 2, Level 28, Unit 2804P.O. Box: 506943-DIFC Dubai, UAE Tel: (971-4) 3889099Senior Executive Officer: Ms. Gina Arab

* Operations launched in March 2015 CORPORATE DIRECTORY

212 213

COUNTRY CORRESPONDENT BANK

AUSTRALIA ARAB BANK AUSTRALIA *

AUSTRIA UNICREDIT BANK AUSTRIA

BAHRAIN BANK ABC

BELGIUM ING BANK *

KBC BANK

CANADA BANK OF MONTREAL*

CHINA BANK OF CHINA

STANDARD CHARTERED BANK*

DENMARK DANSKE BANK *

EGYPT ARAB BANK

FRANCE NATIXIS *

UBAF

GERMANY COMMERZBANK *

DEUTSCHE BANK *

UNICREDIT BANK

ITALY INTESA SANPAOLO *

UNICREDIT

JAPAN THE BANK OF TOKYO-MITSUBISHI UFJ *

SUMITOMO MITSUI BANKING CORPORATION

JORDAN ARAB BANK *

THE HOUSING BANK FOR TRADE & FINANCE *

KUWAIT GULF BANK *

NATIONAL BANK OF KUWAIT

NORWAY DNB BANK *

OMAN BANKMUSCAT

QATAR QATAR NATIONAL BANK *

DOHA BANK

SAUDI ARABIA BANQUE SAUDI FRANSI *

RIYAD BANK *

SAUDI HOLLANDI BANK *

THE NATIONAL COMMERCIAL BANK *

THE SAUDI INVESTMENT BANK *

SOUTH AFRICA THE STANDARD BANK OF SOUTH AFRICA *

SPAIN BANCO DE SABADELL *

CAIXABANK

SRI LANKA PEOPLE'S BANK *

SWEDEN NORDEA BANK

SVENSKA HANDELSBANKEN *

SWITZERLAND BANKMED (SUISSE) *

CREDIT SUISSE *

UNITED ARAB EMIRATES EMIRATES NBD

MASHREQBANK *

UNITED KINGDOM HSBC BANK *

UNITED STATES BANK OF NEW YORK MELLON *

CITIBANK *

HSBC BANK USA *

JPMORGAN CHASE BANK *

STANDARD CHARTERED BANK *

CORRESPONDENT BANKS

COUNTRY CORRESPONDENT BANK

* Bankmed maintains NOSTRO account(s) with those banks

CORRESPONDENT BANKS

Documents

TABLE OF - Bankmed · 2016-01-05 · 01 Bankmed has always been highly recognized for its key economic role in the ... Baghdad, Erbil, and Basra. Most recently, Bankmed and its fully